Private Client Services Update – 2011 Virginia Legislative Update – Trusts & Estates Law
By Sarah E. Messersmith, Estate, Trust & Wealth Transfer
The 2011 Virginia legislative session resulted in several important changes to trusts and estates law. Of particular note, any bank may now serve as a trustee in Virginia, even if the bank does not have an office located within the Commonwealth. This is helpful for clients who have relocated to Virginia after having established a fiduciary relationship with a bank in another state.
Additionally, Virginia law now provides that the assets of certain QTIP trusts and certain general power of appointment trusts are not subject to the claims of creditors of the settlor or creditors of a beneficiary with a power of withdrawal. This also has an effect on which assets are includable in the settlor’s gross estate for federal estate tax purposes.
In response to Congress’ changes to the federal estate tax law, the Virginia legislature updated the statute which addresses the effect of formula clauses in wills and trusts of decedents who died in 2010. These formula clauses are to be interpreted to refer to the laws effective in 2010 (i.e., the existence of a $5,000,000 unified credit equivalent) even if the personal representative ultimately elects not to have the estate tax apply to the estate unless the will or trust indicates a contrary intent. This guidance from the Virginia legislature is critical to being able to administer the estates of 2010 decedents. The law also provides a method by which the fiduciary or any beneficiary may seek a judicial determination that the 2010 decedent intended the will or trust to be interpreted not to refer to the 2010 federal transfer taxes. Interested parties also may enter into a binding nonjudicial settlement agreement about the interpretation of formula clauses in the decedent’s will or trust. This has the potential to permit the heirs of a 2010 decedent a great deal of flexibility in the interpretation of the estate planning documents and the administration of the estate.
Below are some more specific descriptions of the Bills passed.
Trustees Outside of Virginia – HB 2366
- Amends Virginia Code §§ 6.2-1001 and 6.2-1014 to permit any national banking association to serve as a trustee in Virginia if it is regulated by the Comptroller of the Currency, even if it does not have a physical office located within the Commonwealth. This Bill codifies a 2003 opinion of the Attorney General.
Creditor Protection for Trusts – SB 1072
- Amends Virginia Code § 55-545.05 to provide that assets of some trusts will not be subject to the claims of creditors of the settlor or creditors of a beneficiary with a power of withdrawal. This creates a state law comparable to the existing federal law.
- If a QTIP Trust or general power of appointment trust which qualifies for the federal estate tax marital deduction is created, but the spouse dies before the settlor, the property in the trust will be deemed to have been contributed by the spouse rather than by the settlor. This means that the state law which provides that creditors of a settlor may reach the settlor’s contributions to an irrevocable trust would not permit the creditors of the surviving settlor to reach the trust assets.
- The Internal Revenue Code provides that property that can be used to pay a decedent’s debts is considered to be in the decedent’s gross estate for federal estate tax purposes. If the QTIP Trust or general power of appointment trust assets described above are not available to pay the settlor’s debts, then they also are not includable in the settlor’s gross estate for federal estate tax purposes.
Formula Clauses – SB 1423
- Amends Virginia Code § 64.1-62.4 which provides the default rule of construction for formula clauses in wills and trusts for decedents who died in 2010.
- A formula clause with reference to federal transfer taxes will be deemed to refer to such laws effective in 2010 even if the personal representative ultimately elects not to have the estate tax apply to the estate unless the will or trust indicates a contrary intent.
- The fiduciary or any beneficiary may seek a judicial determination that the 2010 decedent intended the will or trust to be interpreted not to refer to the 2010 federal transfer taxes.
- Such proceedings must be initiated prior to January 1, 2012.
- The petitioner has the burdens of proof and persuasion and must establish the decedent’s intent by clear and convincing evidence.
- The Court may consider extrinsic evidence.
- The Court is authorized to modify the provisions in the will or trust to conform to the decedent’s intentions.
- Interested parties also may enter into a binding nonjudicial settlement agreement about the interpretation of formula clauses in the decedent’s will or trust.
Virginia Land Trusts – HB 2133
- Amends Virginia Code § 55-17.1 to permit beneficiaries of a Virginia land trust, acting by majority, to name a successor trustee when the trustee who is named in the deed is deceased or otherwise unable to serve.
Notary Conflict of Interest – HB 1670
- Amends Virginia Code § 47.1-30 to prohibit a notary from notarizing a document where the notary is a signatory or is named in the document to be notarized.
Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act – SB 750
- Adopts this uniform act which creates rules for addressing jurisdictional issues.
- A Virginia Court has the right to appoint a guardian or issue a protective order for an adult:
- Who has resided in Virginia at least six months prior to the proceeding;
- Who has significant connections to Virginia, such as family members who reside in Virginia or ownership of property in Virginia, provided that no petition is pending in the person’s home state;
- Whose home state and all other states with which the adult has significant connections have determined that Virginia is the most appropriate forum;
- Who is physically present in Virginia and is in an emergency situation; or
- For whom guardianship or conservatorship is being transferred to Virginia from another state.
- To transfer a guardianship or conservatorship out of Virginia, the Court initially will issue a provisional order of transfer and will later issue a final order after confirmation of acceptance by the Court to which the guardianship or conservatorship is being transferred.
- A Virginia Court will receive a transfer of a guardianship or conservatorship from another state unless a party proves that the transfer would be contrary to the interests of the incapacitated adult.
- Guardians and conservators who are appointed in other states may register in Virginia by filing the order appointing them as a foreign judgment. Upon registration, such guardians and conservators may exercise all powers authorized in their order of appointment, unless prohibited by Virginia law.
Sarah E. Messersmith is an associate attorney at Kaufman & Canoles, where her practice focuses on wills, trusts and estates. Sarah’s work with clients ranges from the initial structuring and implementation of their estate plans to the resulting estate and trust administration. Her practice also includes working with owners of closely-held businesses and representation of clients in all aspects of real estate transactions. Sarah serves on the Board of Trustees of the Sarah Bonwell Hudgins Foundation and the Executive Council of the Virginia Bar Association Young Lawyers Division. She is a Peninsula native and works in the firm’s Hampton office. Sarah can be reached at (757) 224.2950 or firstname.lastname@example.org.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.