Could a grantor living trust merge into a Florida limited partnership so its real estate transferred without documentary stamp tax?

Plain-English summary

Florida concluded that the grantor living trust could not merge into a limited partnership as a common-law or business trust. Because the proposed statutory merger could not occur, recording a certificate of merger would not move the real estate tax-free. A transfer of the trust's property interests to the partnership would instead trigger documentary stamp tax based on consideration equal to fair market value.

The trust was a standard estate-planning vehicle created during the grantor's lifetime to manage assets during incapacity and distribute them at death. It had accumulated about 500 properties, primarily single-family houses rented to third parties.

An estate-planning trust was not a business trust

The requester called the arrangement a common-law trust, but the Department looked at its substance. The trust agreement provided for lifetime management and distribution at the grantor's death, making it an inter vivos living trust governed by the statutes addressing that kind of trust.

By contrast, Chapter 609 addressed declarations of trust formed by two or more people to transact business and sell or offer units or shares. A business trust resembled a corporation and could issue transferable certificates of beneficial interest.

The living trust had no such business-trust structure or certificates.

Adding a trustee and registering did not solve the problem

The proposal contemplated adding a second trustee and registering under Chapter 609 immediately before the merger, without otherwise changing the trust agreement.

Florida found that registration unavailable because the trust did not qualify as a declaration-of-trust business organization in the first place. A procedural filing could not convert the estate-planning trust into an eligible business entity.

No valid merger meant no automatic title transfer

The parties planned to record a certificate stating that title passed to the partnership automatically by operation of law, without recording deeds for the individual properties.

Florida considered the certificate irrelevant because the underlying merger was not legally available under the statutes it analyzed. If the trust transferred its interests in the properties to the partnership, section 201.02 applied and fair market value was treated as the consideration for documentary stamp tax.

What this means for you

Trustees and estate-planning clients

Do not assume a revocable or grantor living trust can use business-entity merger statutes merely because it holds rental property. The trust's formation, purpose, governing document, and beneficial-interest structure matter.

Real-estate partnerships

Entity-conversion paperwork does not eliminate transfer tax when the transferring trust is ineligible for the proposed merger. Analyze how title will actually move for every property.

Accountants and tax professionals

The ruling applied 2004 trust, partnership, and documentary-stamp statutes to a highly specific structure. Confirm current entity law before using its classification analysis, while recognizing that the TAA itself taxed a direct property transfer at fair market value.

Common questions

Q: Did the number of rental properties make the trust a business trust?
A: No. Florida focused on the trust's estate-planning structure and purpose, not merely its roughly 500 properties.

Q: Could adding a second trustee qualify it under Chapter 609?
A: No. The Department said the trust still was not a common-law or business trust eligible to register.

Q: Would recording a certificate of merger transfer title automatically?
A: Not under the proposed structure, because Florida concluded that no valid merger could occur.

Q: What tax applied if the trust transferred the properties anyway?
A: Documentary stamp tax based on consideration equal to the properties' fair market value.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax and fair-market-value presumption when consideration includes property
• Fla. Stat. § 609.02 — filing requirements for business declarations of trust
• Fla. Stat. § 689.075 — inter vivos trusts
• Fla. Stat. § 731.201(34) — probate-code trust definition and exclusions
• Fla. Stat. § 620.201(1) and (2) — other business entities eligible for the merger provisions analyzed

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04B4-008

Original ruling text

SUMMARY
QUESTION: May a grantor living trust owning real property merge into a partnership under the provisions of Chapter
609, F.S.?
ANSWER Based On Facts Below: No, a grantor living trust may not merge into a partnership under Chapter 609,
F.S., because it is not a common law or business trust. As an inter-vivos trust, the trust does not fall under the
declaration of trust provisions under Chapter 609, F.S., but falls under the provisions of s. 689.075, F.S., and therefore
is not eligible to register as a business trust. The recording of a certificate of merger in the county where the real
properties are located is irrelevant, since no merger of the trust can occur.
If the trust transfers its interest in the properties to the partnership, the documentary stamp tax will be due based on
the consideration equal to the fair market value of the properties.

July 21, 2004

Re: Technical Assistance Advisement No. 04B4-008
Documentary Stamp Tax - Merger of Grantor Living Trust with Partnership
Sections 201.02(1), 609.02, 731.201(34), 689.075, 620.201(1) and (2), F.S.
XXX ("Trustee")
XXX ("Trust")
XXX ("Partnership")
Dear:
This is in response to your letter dated May 27, 2004, requesting a Technical Assistance Advisement on the
Florida documentary stamp tax implications with respect to (a) a merger of the Trust into the Partnership, or
alternatively (b) a registration of the Trust under Chapter 609, F.S., followed by a subsequent merger of the newly
registered Trust into the Partnership.
FACTS PRESENTED BY THE PETITIONER
The Trustee, who is also the Grantor, is currently the sole Trustee of the Trust. Your letter states the Trust is a
common law trust created under a declaration of trust dated July 15, 1997, as amended. The Trust was designed as a
standard estate planning vehicle, which disposes of the trustee’s assets upon his death and provides for their
management in the event of incapacity, in each case without the need for intervention by a court of law. To date, the
Trust has accumulated approximately 500 separate pieces of property, which are primarily single family houses that
are rented or leased to third parties. In order to have these properties held in a more appropriate business entity, the
trust proposes to merge with the Partnership. No deed will be executed or recorded in connection therewith, but a

certificate of merger will be recorded in the public records to reflect that title to the real property owned by the Trust
has been conveyed to the Partnership automatically by operation of law in the merger.
In the event it is deemed desirable by the Trustee or the Trust, the Trust may register under Chapter 609, F.S.
(after adding a second trustee to comply with the requirement of two trustees), immediately prior to the merger. No
other changes will be made to the Trust Agreement other than the addition of the second trustee. No certificates or
instruments reflecting ownership in the Trust will be prepared or issued.
REQUESTED RULING
The relevant parties to the transaction request a ruling that no documentary stamp tax is due upon (a) the merger
of the Trust into the Partnership, (b) the election by the Trust to register under Chapter 609, F.S., and (c) the recording
of a certificate of merger in the public records of the appropriate counties to reflect that title to real property owned by
the Trust has been conveyed to the Partnership automatically by operation of law in the merger.
LAW AND DISCUSSION
Section 201.02, F.S., provides as follows:
201.02 Tax on deeds and other instruments relating to real property or interests in real property.-(1) On deeds, instruments, or writings whereby any lands, tenements, or other real property, or any interest therein,
shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or any other person by
his or her direction, on each $100 of the consideration therefor the tax shall be 70 cents. When the full amount of the
consideration for the execution, assignment, transfer, or conveyance is not shown in the face of such deed,
instrument, document, or writing, the tax shall be at the rate of 70 cents for each $100 or fractional part thereof of the
consideration therefor. For purposes of this section, consideration includes, but is not limited to, the money paid or
agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or
other encumbrance, whether or not the underlying indebtedness is assumed. If the consideration paid or given in
exchange for real property or any interest therein includes property other than money, it is presumed that the
consideration is equal to the fair market value of the real property or interest therein. (E.S.)
The Trust Agreement provided with your correspondence indicates that the Trust is a living trust. A living trust that
is defined in Black's Law Dictionary, 7th edition, defines an "inter vivos trust." An inter vivos trust is defined as "a trust
which is created and takes effect during the grantor's lifetime." An inter vivos trust falls under the provisions of Chapter
689, F.S., and is specifically addressed in s. 689.075, F.S. Instruments creating these trusts are called "Trust
Agreements." In the Second Amendment to the Jay Higbee Living Trust, the Trust is titled a "Trust Agreement."
Conversely, Black's Law Dictionary, 7th Edition, under the term "common-law trust," states: "See business trust." A
business trust is defined as "A form of business organization, similar to a corporation, in which investors receive
transferable certificates of beneficial interest (instead of stock shares). Also termed Massachusetts trust or common
law trust."

Chapter 609, F.S., provides for common law declarations of trust, allowing two or more persons to organize and
associate themselves together for the purpose of transacting business in this state under what is commonly
designated or know as a "declaration of trust." Per s. 609.02, F.S., every organization organized for the purpose of
transacting business in this state, or organized for the purpose of transacting business elsewhere, which intends to
sell or offer for sale any units or shares, prior to transacting any such business, "shall... file with the Department of
State, a true and correct copy of the declaration of trust under which the association proposes to conduct its
business, which copy shall be sworn to, as being a true and correct copy, by the chair of the board of trustees named
in such declaration of trust." (E.S.)
Therefore, although your letter has termed this Trust a "common law trust," it does not fall under the provisions of
Chapter 609, F.S., as it is not a common law or business trust under the common law definition. It is a Trust created
for the purpose of distributing assets upon the death of the Trustee to the beneficiaries of the trust and, as pointed out
in your letter, is an estate planning vehicle. In contrast, a business trust is set up for the purpose of conducting
business much like a corporation, and it may issue shares, certificates of beneficial ownership or interest, or other
security. A business trust does not terminate upon the death of the association, but has perpetual life unless the
association decides to liquidate the trust and distribute the assets to the shareholders or unitholders.
Since the Trust in question is a grantor living trust, designed as an estate planning vehicle, the assets are to be
distributed to the beneficiaries upon the death of the grantor. Although you did not include Section 3 of the Trust
Agreement, titled "Distribution upon Grantor's Death," and excluded Pages 5-11 of the Trust Agreement, there is no
question that a grantor living trust operates by distributing its assets in the manner described under Florida Trust Law.
Unless revoked by the grantor prior to his death, upon the death of the Grantor, if all of the trust assets have not been
distributed as of January 1, the Grantor’s estate is liable for paying federal tax on those assets.
Under the probate code, s. 731.201(34), F.S., states:
"Trust" means an express trust, private or charitable, with additions to it, whatever and however created. It also
includes a trust created and determined by judgment or decree under which the trust is to be administered in the
manner of an express trust. "Trust" excludes other constructive trusts, and it excludes resulting trusts;
conservatorships; custodial arrangements pursuant to the Florida Uniform Transfers to Minors Act; business trusts
providing for certificates to be issued to beneficiaries; common trust funds; land trusts under s. 689.05; trusts
created by the form of the account or by the deposit agreement at a financial institution; voting trusts; security
arrangements; liquidation trusts; trusts for the primary purpose of paying debts, dividends, interest, salaries, wages,
profits, pensions, or employee benefits of any kind; and any arrangement under which a person is nominee or
escrowee for another. (E.S.)
An express trust is defined in Black's Law, 7th edition, as a trust created with the settlor’s express intent, usually
declared in writing; an ordinary trust as opposed to a resulting trust or constructive trust.
Therefore, the probate code does not allow for a business trust or common law trust to fall under probate law,
since these types of trust are not connected with the probation of a will.

The definition of "other business entities" under s. 620.201(1), F.S, does not include a grantor living trust. Section
620.201(1), F.S., includes within the definition of "other business entities" a common law trust and a business trust. A
common law or business trust may merge with a Florida limited partnership under Chapter 620, F.S. However, a
grantor living trust is not a common law or business trust and does not fall under the merger provisions in Chapter
620, F.S.
DETERMINATION
In response to the requested rulings, it is the Department"s opinion that the Trust in question may not merge into a
Florida limited partnership under the provisions of Chapter 609, F.S., because it is not a common law trust or a
business trust. The election to register under Chapter 609, F.S., in the Department's opinion, is not allowed, since the
trust does not fall under the declaration of trust provisions of Chapter 609, F.S. Lastly, the recording of a certificate of
merger in the public records where the properties are located is irrelevant, due to the opinion of the Department that
no merger of the trust may occur.
Therefore, if the trust transfers its interest in the properties to the proposed partnership, the documentary stamp tax
will be due based on the consideration equal to the fair market value of the properties.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice, as specified in s. 213.22,
F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment from that which is expressed in this
response.
You are further advised that this response, your request and related backup are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must
be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with
an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this letter.
Sincerely,
Joy B. Eldred, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
JE/mh