Virginia Law

A. Subject to § 64.2-1068, and except as otherwise provided in subdivision C 2 of § 64.2-1071, a fiduciary shall disburse from principal:

1. The balance of the disbursements described in subdivisions 1 and 3 of § 64.2-1064, after application of subdivision 2 of § 64.2-1064;

2. The fiduciary's compensation calculated on principal as a fee for acceptance, distribution, or termination;

3. A payment of an expense to prepare for or execute a sale or other disposition of property;

4. A payment on the principal of a trust debt;

5. A payment of an expense of an accounting, judicial or nonjudicial proceeding, or other matter that involves primarily principal, including a proceeding to construe the terms of the trust or protect property;

6. A payment of a premium for insurance, including title insurance, not described in subdivision 4 of § 64.2-1064, of which the fiduciary is the owner and beneficiary;

7. A payment of an estate or inheritance tax or other tax imposed because of the death of a decedent, including penalties, apportioned to the trust; and

8. A payment:

a. Related to environmental matters, including:

(1) Reclamation;

(2) Assessing environmental conditions;

(3) Remedying and removing environmental contamination;

(4) Monitoring remedial activities and the release of substances;

(5) Preventing future releases of substances;

(6) Collecting amounts from persons liable or potentially liable for the costs of activities described in subdivisions (1) through (5);

(7) Penalties imposed under environmental laws or regulations;

(8) Other actions to comply with environmental laws or regulations;

(9) Statutory or common law claims by third parties; and

(10) Defending claims based on environmental matters; and

b. For a premium for insurance for matters described in subdivision a.

B. If a principal asset is encumbered with an obligation that requires income from the asset to be paid directly to a creditor, the fiduciary shall transfer from principal to income an amount equal to the income paid to the creditor in reduction of the principal balance of the obligation.

C. Notwithstanding any other provision of law and except as the terms of the trust provide to the contrary, a trustee, in the trustee's sole discretion, may reimburse the settlor from the income or principal of the trust for any amount of the settlor's personal federal, state, or any other income tax liability that is attributable to the treatment of the settlor as the owner of all or any part of the trust in accordance with the provisions of Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code. When making such reimbursement, the trustee may, in his sole discretion, pay such amount either to the settlor directly or the appropriate tax authority on behalf of the settlor.

D. Unless the terms of a trust expressly provide to the contrary, the trustee shall not have the power to make such a reimbursement pursuant to subsection C if (i) in a case where the trust is not a revocable trust, the trustee is related or subordinate to the settlor under § 672(c) of the Internal Revenue Code or (ii) such reimbursement would prevent a contribution to the trust from qualifying for a federal tax benefit or would reduce the federal tax benefit that was originally claimed or that could have been claimed for such contribution, including any (a) exclusion under §§ 2503(b) or 2503(c) of the Internal Revenue Code, (b) marital deduction under §§ 2056, 2056A, or 2522(a) of the Internal Revenue Code, (c) charitable deduction under §§ 170(a), 642(c), 2055(a), or 2522(a) of the Internal Revenue Code, and (d) classification as a direct skip under § 2642(c) of the Internal Revenue Code.

2022, c. 354; 2026, c. 476.