Code of Virginia

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Code of Virginia
Title 64.2. Wills, Trusts, and Fiduciaries
Chapter 10.1. Uniform Fiduciary Income and Principal Act
2/3/2023

Article 2. Fiduciary Duties and Judicial Review.

§ 64.2-1036. Fiduciary duties; general principles.

A. In making an allocation or determination or exercising discretion under this chapter, a fiduciary shall:

1. Act in good faith, based on what is fair and reasonable to all beneficiaries;

2. Administer a trust or estate impartially, except to the extent the terms of the trust manifest an intent that the fiduciary shall or may favor one or more beneficiaries;

3. Administer the trust or estate in accordance with the terms of the trust, even if there is a different provision in this chapter; and

4. Administer the trust or estate in accordance with this chapter, except to the extent the terms of the trust provide otherwise or authorize the fiduciary to determine otherwise.

B. A fiduciary's allocation, determination, or exercise of discretion under this chapter is presumed to be fair and reasonable to all beneficiaries. A fiduciary may exercise a discretionary power of administration given to the fiduciary by the terms of the trust, and an exercise of the power that produces a result different from a result required or permitted by this chapter does not create an inference that the fiduciary abused the fiduciary's discretion.

C. A fiduciary shall:

1. Add a receipt to principal, to the extent neither the terms of the trust nor this chapter allocates the receipt between income and principal; and

2. Charge a disbursement to principal, to the extent neither the terms of the trust nor this chapter allocates the disbursement between income and principal.

D. A fiduciary may exercise the power to adjust under § 64.2-1038, convert an income trust to a unitrust under subdivision A 1 of § 64.2-1041, change the percentage or method used to calculate a unitrust amount under subdivision A 2 of § 64.2-1041, or convert a unitrust to an income trust under subdivision A 3 of § 64.2-1041 if the fiduciary determines the exercise of the power will assist the fiduciary to administer the trust or estate impartially.

E. Factors the fiduciary must consider in making the determination under subsection D include:

1. The terms of the trust;

2. The nature, distribution standards, and expected duration of the trust;

3. The effect of the allocation rules, including specific adjustments between income and principal, under Articles 4 (§ 64.2-1048 et seq.) through 9 (§ 64.2-1073 et seq.);

4. The desirability of liquidity and regularity of income;

5. The desirability of the preservation and appreciation of principal;

6. The extent to which an asset is used or may be used by a beneficiary;

7. The increase or decrease in the value of principal assets, reasonably determined by the fiduciary;

8. Whether and to what extent the terms of the trust give the fiduciary power to accumulate income or invade principal or prohibit the fiduciary from accumulating income or invading principal;

9. The extent to which the fiduciary has accumulated income or invaded principal in preceding accounting periods;

10. The effect of current and reasonably expected economic conditions; and

11. The reasonably expected tax consequences of the exercise of the power.

2022, c. 354.

§ 64.2-1037. Judicial review of exercise of discretionary power; request for instruction.

A. As used in this section, "fiduciary decision" means:

1. A fiduciary's allocation between income and principal or other determination regarding income and principal required or authorized by the terms of the trust or this chapter;

2. The fiduciary's exercise or nonexercise of a discretionary power regarding income and principal granted by the terms of the trust or this chapter, including the power to adjust under § 64.2-1038, convert an income trust to a unitrust under subdivision A 1 of § 64.2-1041, change the percentage or method used to calculate a unitrust amount under subdivision A 2 of § 64.2-1041, or convert a unitrust to an income trust under subdivision A 3 of § 64.2-1041; or

3. The fiduciary's implementation of a decision described in subdivision 1 or 2.

B. The court may not order a fiduciary to change a fiduciary decision unless the court determines that the fiduciary decision was an abuse of the fiduciary's discretion.

C. If the court determines that a fiduciary decision was an abuse of the fiduciary's discretion, the court may order a remedy authorized by law, including § 64.2-792. To place the beneficiaries in the positions the beneficiaries would have occupied if there had not been an abuse of the fiduciary's discretion, the court may order:

1. The fiduciary to exercise or refrain from exercising the power to adjust under § 64.2-1038;

2. The fiduciary to exercise or refrain from exercising the power to convert an income trust to a unitrust under subdivision A 1 of § 64.2-1041, change the percentage or method used to calculate a unitrust amount under subdivision A 2 of § 64.2-1041, or convert a unitrust to an income trust under subdivision A 3 of § 64.2-1041;

3. The fiduciary to distribute an amount to a beneficiary;

4. A beneficiary to return some or all of a distribution; or

5. The fiduciary to withhold an amount from one or more future distributions to a beneficiary.

D. On petition by a fiduciary for instruction, the court may determine whether a proposed fiduciary decision will result in an abuse of the fiduciary's discretion. If the petition describes the proposed decision, contains sufficient information to inform the beneficiary of the reasons for making the proposed decision and the facts on which the fiduciary relies, and explains how the beneficiary will be affected by the proposed decision, a beneficiary that opposes the proposed decision has the burden to establish that it will result in an abuse of the fiduciary's discretion.

2022, c. 354.

§ 64.2-1038. Fiduciary's power to adjust.

A. Except as otherwise provided in the terms of a trust or this section, a fiduciary, in a record, without court approval, may adjust between income and principal if the fiduciary determines the exercise of the power to adjust will assist the fiduciary to administer the trust or estate impartially.

B. This section does not create a duty to exercise or consider the power to adjust under subsection A or to inform a beneficiary about the applicability of this section.

C. A fiduciary that in good faith exercises or fails to exercise the power to adjust under subsection A is not liable to a person affected by the exercise or failure to exercise.

D. In deciding whether and to what extent to exercise the power to adjust under subsection A, a fiduciary shall consider all factors the fiduciary considers relevant, including relevant factors in subsection E of § 64.2-1036 and the application of subsection I of § 64.2-1048 and §§ 64.2-1055 and 64.2-1060.

E. A fiduciary may not exercise the power under subsection A to make an adjustment or under § 64.2-1055 to make a determination that an allocation is insubstantial if:

1. The adjustment or determination would reduce the amount payable to a current income beneficiary from a trust that qualifies for a special tax benefit, except to the extent the adjustment is made to provide for a reasonable apportionment of the total return of the trust between the current income beneficiary and successor beneficiaries;

2. The adjustment or determination would change the amount payable to a beneficiary, as a fixed annuity or a fixed fraction of the value of the trust assets, under the terms of the trust;

3. The adjustment or determination would reduce an amount that is permanently set aside for a charitable purpose under the terms of the trust, unless both income and principal are set aside for the charitable purpose;

4. Possessing or exercising the power would cause a person to be treated as the owner of all or part of the trust for federal income tax purposes;

5. Possessing or exercising the power would cause all or part of the value of the trust assets to be included in the gross estate of an individual for federal estate tax purposes;

6. Possessing or exercising the power would cause an individual to be treated as making a gift for federal gift tax purposes;

7. The fiduciary is not an independent person;

8. The trust is irrevocable and provides for income to be paid to the settlor and possessing or exercising the power would cause the adjusted principal or income to be considered an available resource or available income under a public-benefit program; or

9. The trust is a unitrust under Article 3 (§ 64.2-1039 et seq.).

F. If subdivision E 4, 5, 6, or 7 applies to a fiduciary:

1. A co-fiduciary to which subdivisions E 4 through 7 does not apply may exercise the power to adjust, unless the exercise of the power by the remaining co-fiduciary or co-fiduciaries is not permitted by the terms of the trust or law other than this chapter; or

2. If there is no co-fiduciary to which subdivisions E 4 through 7 does not apply, the fiduciary may appoint a co-fiduciary to which subdivisions E 4 through 7 does not apply, which may be a special fiduciary with limited powers, and the appointed co-fiduciary may exercise the power to adjust under subsection A, unless the appointment of a co-fiduciary or the exercise of the power by a co-fiduciary is not permitted by the terms of the trust or law other than this chapter.

G. A fiduciary may release or delegate to a co-fiduciary the power to adjust under subsection A if the fiduciary determines that the fiduciary's possession or exercise of the power will or may:

1. Cause a result described in subdivision E 1 through 6 or 8; or

2. Deprive the trust of a tax benefit or impose a tax burden not described in subdivisions E 1 through 6.

H. A fiduciary's release or delegation to a co-fiduciary under subsection G of the power to adjust under subsection A:

1. Must be in a record;

2. Applies to the entire power, unless the release or delegation provides a limitation, which may be a limitation to the power to adjust:

a. From income to principal;

b. From principal to income;

c. For specified property; or

d. In specified circumstances;

3. For a delegation, may be modified by a redelegation under this subsection by the co-fiduciary to which the delegation is made; and

4. Subject to subdivision 3, is permanent, unless the release or delegation provides a specified period, including a period measured by the life of an individual or the lives of more than one individual.

I. Terms of a trust that deny or limit the power to adjust between income and principal do not affect the application of this section, unless the terms of the trust expressly deny or limit the power to adjust under subsection A.

J. The exercise of the power to adjust under subsection A in any accounting period may apply to the current period, the immediately preceding period, and one or more subsequent periods.

K. A description of the exercise of the power to adjust under subsection A must be:

1. Included in a report, if any, sent to beneficiaries under § 64.2-775; or

2. Communicated at least annually to the qualified beneficiaries determined under § 64.2-701, other than the Attorney General.

2022, c. 354.