Florida Banking May 2023

seasoned tax attorney before trying to DIY trust-tax reimbursements. This statute only applies to specific trusts, in a limited set of circumstances. Family Trust Companies Finally, the Florida Legislature is turning the Sunshine State into the Family Trust State by passing laws serving family trust companies, which have been permitted in Florida since 2014. What is a family trust company? According to chapter 662, Florida Statutes, a family trust company is a corporation or limited liability company that is exclusively owned by family members with the intended purpose to serve as a fiduciary exclusively for that family. Who is considered “family” is defined by law relative to their relationship to the “designative relative.” (Useful tip: If the company is licensed with the state, the definition of family becomes more expansive). However, these trust companies are not for your average Joe. State law requires that a family trust company have a capital account of at least $250,000 per designated relative, and the minimum increases with each additional designated relative. The family trust company solves a problem that the dynasty trust cannot: no matter how good your trustee is, trustees cannot live 1,000 years. In contrast, a family trust company can manage a family trust under chapter 662 for as long as the trust survives. Because Florida has equipped family trust companies with a variety of tools to streamline trust management, family trust companies could displace traditional corporate trustees in some circumstances. Accordingly, anyone who works in this field would benefit from staying ahead The Florida Family, Continued on page 18

What is the new rule against perpetuities? In 2000, the Florida Legislature passed a law extending the rule against perpetuities to 360 years after the creation of a nonvested property interest. In 2022, the Legislature extended the deadline to vest to 1,000 years. Practically speaking, this means that Grandpa can set up his educational trust to provide for his family for 1,000 years. He gets to make his money, then he gets to direct how that money is spent for a millennia. This new rule allows for the creation of “dynasty trusts,” giving people the ability to provide for their family for generation after generation. However, the benefits go beyond controlling how one’s family spends money. A dynasty trust may be used to hold stocks in family businesses, or even family homes. With a Florida dynasty trust you can assure that your family’s business will remain in the family for 1,000 years after you pass. For these reasons, and many more, many affluent families will likely view Florida an attractive place to set up their dynasty trusts. And all of these new 1,000-year trusts need 1,000-year trustees. Corporate trustees — see below for more on family trust companies — will be the only viable option for ensuring that trusts are properly managed centuries into the future. Income Tax Reimbursement The next change in Florida law that is likely to draw family trusts to Florida offers settlors an optional income tax reimbursement. In some types of trusts, the settlor is treated as the owner of the trust assets for the purposes of calculating federal tax responsibilities. This can be a great tool, potentially allowing settlors to pay the trust’s taxes

then transfer tax-free gifts to the beneficiaries. However, this responsibility to pay taxes on income the settlor will never see can be a burden. Florida’s Legislature stepped in to address that issue. Section 736.08145, Florida Statutes, passed in 2020, can make it easier for settlors to get reimbursed for taxes they pay on behalf of certain trusts. It allows, but does not require, trustees to reimburse the settlor for all or part of the taxes paid by the grantor attributable to trust income, or in some situations, pay the trust’s taxes directly. This gives trustees the flexibility to manage the trust’s funds and costs, without always foisting the tax burden on the settlor. But word to the wise — get the advice of a

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