Virginia Law

Article 8. Death of Individual or Termination of Income Interest.

A. This section applies when:

1. The death of an individual results in the creation of an estate or trust; or

2. An income interest in a trust terminates, whether the trust continues or is distributed.

B. A fiduciary of an estate or trust with an income interest that terminates shall determine, under subsection G and Articles 4 (§ 64.2-1048 et seq.), 5 (§ 64.2-1051 et seq.), 6 (§ 64.2-1055 et seq.), 7 (§ 64.2-1064 et seq.), and 9 (§ 64.2-1073 et seq.), the amount of net income and net principal receipts received from property specifically given to a beneficiary. The fiduciary shall distribute the net income and net principal receipts to the beneficiary that is to receive the specific property.

C. A fiduciary shall determine the income and net income of an estate or income interest in a trust that terminates, other than the amount of net income determined under subsection B, under Articles 4 (§ 64.2-1048 et seq.), 5 (§ 64.2-1051 et seq.), 6 (§ 64.2-1055 et seq.), 7 (§ 64.2-1064 et seq.), and 9 (§ 64.2-1073 et seq.), and by:

1. Including in net income all income from property used or sold to discharge liabilities;

2. Paying from income or principal, in the fiduciary's discretion, fees of attorneys, accountants, and fiduciaries, court costs and other expenses of administration, and interest on estate and inheritance taxes and other taxes imposed because of the decedent's death, but the fiduciary may pay the expenses from income of property passing to a trust for which the fiduciary claims a federal estate tax marital or charitable deduction only to the extent:

a. The payment of the expenses from income will not cause the reduction or loss of the deduction; or

b. The fiduciary makes an adjustment under subsection B of § 64.2-1070; and

3. Paying from principal other disbursements made or incurred in connection with the settlement of the estate or the winding up of an income interest that terminates, including:

a. To the extent authorized by the decedent's will, the terms of the trust, or applicable law, debts, funeral expenses, disposition of remains, family allowances, estate and inheritance taxes, and other taxes imposed because of the decedent's death; and

b. Related penalties that are apportioned, by the decedent's will, the terms of the trust, or applicable law, to the estate or income interest that terminates.

D. If a decedent's will, the terms of a trust, or applicable law provides for the payment of interest or the equivalent of interest to a beneficiary that receives a pecuniary amount outright, the fiduciary shall make the payment from net income determined under subsection C or from principal, to the extent net income is insufficient.

E. If a beneficiary is to receive a pecuniary amount outright from a trust after an income interest ends because of an income beneficiary's death, and no payment of interest or the equivalent of interest is provided for by the terms of the trust or applicable law, the fiduciary shall pay the interest or the equivalent of interest to which the beneficiary would be entitled under applicable law if the pecuniary amount were required to be paid under a will.

F. A fiduciary shall distribute net income remaining after payments required by subsections D and E in the manner described in § 64.2-1072 to all other beneficiaries, including a beneficiary that receives a pecuniary amount in trust, even if the beneficiary holds an unqualified power to withdraw assets from the trust or other presently exercisable general power of appointment over the trust.

G. A fiduciary may not reduce principal or income receipts from property described in subsection B because of a payment described in § 64.2-1064 or 64.2-1065, to the extent the decedent's will, the terms of the trust, or applicable law requires the fiduciary to make the payment from assets other than the property or to the extent the fiduciary recovers or expects to recover the payment from a third party. The net income and principal receipts from the property must be determined by including the amount the fiduciary receives or pays regarding the property, whether the amount accrued or became due before, on, or after the date of the decedent's death or an income interest's terminating event, and making a reasonable provision for an amount the estate or income interest may become obligated to pay after the property is distributed.

2022, c. 354.

A. Except to the extent Article 3 (§ 64.2-1039 et seq.) applies for a beneficiary that is a trust, each beneficiary described in subsection F of § 64.2-1071 is entitled to receive a share of the net income equal to the beneficiary's fractional interest in undistributed principal assets, using values as of the distribution date. If a fiduciary makes more than one distribution of assets to beneficiaries to which this section applies, each beneficiary, including a beneficiary that does not receive part of the distribution, is entitled, as of each distribution date, to a share of the net income the fiduciary received after the decedent's death, an income interest's other terminating event, or the preceding distribution by the fiduciary.

B. In determining a beneficiary's share of net income under subsection A, the following rules apply:

1. The beneficiary is entitled to receive a share of the net income equal to the beneficiary's fractional interest in the undistributed principal assets immediately before the distribution date.

2. The beneficiary's fractional interest under subdivision 1 must be calculated:

a. On the aggregate value of the assets as of the distribution date without reducing the value by any unpaid principal obligation; and

b. Without regard to:

(1) Property specifically given to a beneficiary under the decedent's will or the terms of the trust; and

(2) Property required to pay pecuniary amounts not in trust.

3. The distribution date under subdivision 1 may be the date as of which the fiduciary calculates the value of the assets if that date is reasonably near the date on which the assets are distributed.

C. To the extent a fiduciary does not distribute under this section all of the collected but undistributed net income to each beneficiary as of a distribution date, the fiduciary shall maintain records showing the interest of each beneficiary in the net income.

D. If this section applies to income from an asset, a fiduciary may apply the rules in this section to net gain or loss realized from the disposition of the asset after the decedent's death, an income interest's terminating event, or the preceding distribution by the fiduciary.

2022, c. 354.