STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HAROLD R. HOLMYARD, III, )

)

Petitioner, )

)

vs. ) CASE NOS. 76-1742

) OFFICE OF THE COMPTROLLER, and ) DEPARTMENT OF REVENUE, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on May 12, 1977, at 10:30 a.m. in Room 103 of the Collins Building, Tallahassee, Florida.

APPEARANCES

For Petitioner: Manley P. Caldwell, Jr.

Caldwell, Pacetti, Barrow and Salisbury Royal Park Building

324 Royal Palm Way

Palm Beach, Florida 33480

For Respondent: Edwin J. Stacker

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE

The issue for determination in this proceeding is whether a trust created by a Florida resident in which the resident reserves the right to amend or revoke with the written consent of the trustees is subject to the Florida intangible personal property tax?

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. At all times material to these proceedings, petitioner, now 26 years of age, has been a resident of the State of Florida. Although he has never been declared incompetent, petitioner has suffered emotional and psychological problems before and since the execution of the Trust Agreement in dispute herein. The Agreement was executed and acknowledged in December of 1971, shortly after petitioner attained his majority.

2. Originally names as trustees were petitioner's mother and Manufacturers Hanover Trust Company of New York, a corporate fiduciary having its principal place of business in New York City. Since the death of petitioner's mother in 1973, petitioner's uncle, James T. Lewis, Jr., and a New York attorney, Thomas

   P. Ford, have served as co-trustees with Manufacturers Hanover Trust Company. The situs of the trust corpus is New York.

   
   

3. Pursuant to the provisions of Florida Statutes Chapter 199, petitioner filed intangible personal property tax returns for 1974 and 1975 reflecting the assets held under the Trust Agreement. (Exhibits 1 and 2). For the year 1974, petitioner paid intangible taxes in the amount of $3,268.29. The amount of

   $2,069.54 was paid for the year 1975.

   
   

4. Contending that the intangible personal property taxes were paid in error, petitioner filed with the respondent Office of the Comptroller a request for refund. (Exhibit 4). By letter dated August 18, 1976, respondent Office of the Comptroller agreed with the position taken by the respondent Department of Revenue and denied petitioner's request for a refund. The basis for the Department of Revenue's determination was that petitioner had a taxable beneficial interest in the trust since his power to revoke and amend was not limited within the meaning of F.A.C. Rule 12B-2.02(3)(e). (Exhibit 5)

   
   

5. Petitioner's right of revocation is reserved in Article Tenth of the Trust Agreement, which provides as follows:

   
   

   "The Settlor shall have the right at any time and from time to time, by an instru- ment in writing duly acknowledged and delivered to the Trustees, to revoke or amend this Agreement, in whole or in part with the written consent of the Trustees." (Exhibit 3, page 19)

   
   

6. Article Ninth of the Trust Agreement provides that the Trust shall be governed and construed under the laws of the State of New York. (Exhibit 3) It was the testimony of one of the individual trustees and one of the officers of the corporate trustee (both residents of New York) that while there was no condition precedent to the initial request by petitioner for revocation or amendment of the Trust Agreement, the same could not be accomplished without the consent of the trustees. It would be the responsibility of the trustees to exercise their discretion as to whether the request was in the best interest of petitioner. These trustees did not consider their consent to be simply a ministerial duty, but rather a sound exercise of discretion. (Exhibits 6 and 7)

   
   

   CONCLUSIONS OF LAW

   
   

7. Intangible personal property subject to taxation in Florida includes "all beneficial interests of residents in trusts." Florida Statutes Section 199.023(1)(c). A "beneficial interest" is defined as

   
   

   "the ownership of one or more property rights in the principal or income of a trust, whether vested, contingent, or subject to conditions, but it shall not mean an interest in trust income only."

   F.S. Section 199.023(6).

   Further, rules promulgated by the Department of Revenue provide that:

   
   

   "If the grantor retains a right to revoke the trust which is not limited, then he shall be considered the owner

   of the trust property for tax purposes."

   F.A.C. Rule 12B-2.02(3)(e).

   
   

8. In this proceeding, petitioner contends that the power reserved in Article Tenth of the Trust Agreement is a limited power to revoke within the purview of Rule 12B-2.02(3)(e), exercisable only with the written consent of the trustees. Petitioner cites case law from New York to the effect that where a trust agreement requires consent of the trustees for revocation, the trustees' judgment in this regard cannot be questioned absent a showing of clear abuse of discretion. The New York courts have also held that where consent of the trustees is required, the trustees must make a determination before granting their consent that the revocation is in the best interest of the grantor. To act otherwise would constitute a breach of their fiduciary responsibilities. In re Dodge's Trust, 250 N.E. 2d 849 (N.Y. 1969); In re Mordecai's Trust, 201

   N.Y.S. 2d 899 (1960), aff'd 210 N.Y.S. 2d 478. Petitioner further cites an Attorney General's Opinion, AGO 064-104 (1964), which answered in the negative the following question:

   
   

   "Is a power to revoke or amend a trust agreement, reserved to the grantor and one or more of the trustees acting jointly, not requiring the consent of the purview of Chapter 199, F.S., and subject to taxation?"

   
   

9. Respondents contend that petitioner has retained a right to revoke which is not limited within the purview of Rule 12B-12.02(3)(e), and that petitioner is therefore the owner of the trust property for tax purposes. It is argued that petitioner's rights under the Trust Agreement include a presently exercisable, vested right to commence the revocation procedure and that this vested right is a valuable right which is taxable under the intangible tax laws or Florida. Respondents suggest that the limitation contemplated by Rule 12B- 2.02(3)(e) is that of a power to revoke which is not presently exercisable (such as one contingent upon reaching a certain age), or one which requires the consent of an adverse party.

   
   

10. After careful consideration of the positions of both parties and the memoranda of law submitted in support thereof, it is concluded that the petitioner's power of revocation under the Trust Agreement is limited within the purview of Rule 12B-2.02(3)(e), F.A.C. Although the petitioner's right to commence the revocation process is presently exercisable and without limitation, it is the right to revoke, and not the right to commence or request revocation, which must not be limited. Here, petitioner cannot revoke the trust without the written consent of all the trustees. That consent is not a mere ministerial duty on the part of the trustees. Prior to their giving or withholding of consent, the trustees must exercise their sound discretionary judgment as to whether the request would be in the best interest of the petitioner at the time the request is made. It is only when the trustees reach an affirmative determination upon this issue that the petitioner's right to revoke becomes absolute. Therefore, it cannot be said that petitioner retains an unlimited power to revoke the trust. Absent consent of the trustees to amend or revoke,

    petitioner retains only an interest in the trust income. This interest is not a "beneficial interest" subject to intangible personal property taxation under Chapter 199, Florida Statutes.

    
    

11. The Hearing Officer is unpersuaded by the respondent's attempt to supplement Rule 12B-2.02(3) by adding thereto the requirement that, in order to be limited, the power to revoke must either not be presently exercisable or must require the consent of an adverse party. If such had been the intent of the Rule, it would have been an easy matter to insert such language into the Rule. The Rule addresses itself only to a "right to revoke the trust which is not limited." The requirement of the Trust Agreement that the written consent of the trustees be obtained prior to revocation places a clear limitation on petitioner's right to revoke.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited above, it is recommended that the Office of the Comptroller refund to petitioner the 1974 and 1975 intangible personal property taxes paid by him in the total amount of

$5,337.83.

Respectfully submitted and entered this 24th day of June, 1977, in Tallahassee, Florida.

COPIES FURNISHED:

Gerald A. Lewis, Comptroller State of Florida

The Capitol

Tallahassee, Florida 32304

Manley P. Caldwell, Jr. Caldwell, Pacetti, Barrow,

and Salisbury Royal Park Building

324 Royal Park Way

Palm Beach, Florida 33480

Edwin J. Stacker

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304

(904) 488-9675

Docket for Case No: 76-001742

Orders for Case No: 76-001742