Tax Type
Fiduciary Income Tax
Description
Resident estates and trusts defined; Fiduciary's domicile
Topic
Estates and Trusts
Date Issued
03-07-1997
March 7, 1997
Re: § 58.1-1821 Application: Fiduciary Income Tax
Dear*********************
This will reply to your letters concerning the amended 1992 through 1994 Virginia fiduciary income tax returns for the trusts of ********** (the "Beneficiaries"). Because of the circumstances surrounding these returns, this case will be treated as an appeal pursuant to Code of Virginia § 58.1-1821. I apologize for the delay in replying.
FACTS
The Beneficiaries were residents of Virginia during taxable years 1992 through 1994. The grandparents of the Beneficiaries, who were residents of Texas, established two separate trusts in 1989 and made each Beneficiary an income beneficiary of a trust. The father, who was also a resident of Virginia, was designated by the trust agreements as the trustee of both trusts.
For the taxable years 1992 through 1994, federal and Virginia fiduciary income tax returns were filed and the appropriate Virginia taxes were paid. In 1995, however, amended 1992 through 1994 Virginia returns were filed indicating that the assets of the trusts and the bookkeeping for the trusts were administered outside of Virginia. The trusts also had no property located in Virginia and received no income from Virginia sources. You contend that, although the trust's legal fiduciary was a Virginia resident, the trust was actually being administered outside of Virginia. The trusts, therefore, were not resident or nonresident trusts, as defined in Code of Virginia § 58.1-302, and there was no requirement to file resident or nonresident Virginia fiduciary income tax returns. As indicated on the amended returns, you are requesting that the taxes paid on the 1992 through 1994 original returns be refunded.
DETERMINATION
Code of Virginia § 58.1-302 sets forth the definition of "resident estate or trust," which includes, "A trust or estate which is being administered in the Commonwealth." A trust or estate administered in Virginia is further clarified in Virginia Regulation (VR) 630-5-302, copy enclosed, which provides that, "A trust or estate is 'being administered in Virginia' if, for example, its assets are located in Virginia, its fiduciary is a resident of Virginia, or it is under the supervision of a Virginia court." (Emphasis added.) A trust, therefore, is considered to be administered in Virginia if it has a fiduciary, such as a trustee, who is a resident of Virginia.
In determining the residency of a trust, the department considers the residency of the trustee. In Public Document (P.D.) 93-189, (August 26, 1993) the department held that:
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- [T]he department must consider not just the domicile of the grantor at the time the Trust was created but also the current domicile of the trustee(s), beneficiaries, and the location of Trust property. If any of these parties are domiciles of Virginia, the tax imposed on Virginia resident trusts or estates under Code of Virginia § 58.1-381 is appropriate. (Emphasis added).
A trust with a trustee who is a Virginia resident is considered to be a resident trust of Virginia and is subject to Virginia taxation. It has been established in this case that the trustee was a Virginia resident, consequently, The Beneficiaries' trusts are resident trusts of Virginia. This conclusion is further supported by the fact that the Beneficiaries were also residents of Virginia.
Concerning the administration of the Beneficiaries' trusts, the responsibilities given to the father, as trustee, are set forth in the terms of the Beneficiaries' trust agreements. The agreements specifically state that the grandparents, as the settlors, "[D]esire that trustee hold, administer and dispose of all property which is subjected to this trust in accordance with the terms hereof." (Emphasis added). Additional responsibilities of the father, as trustee, are clearly enumerated in the terms of the trust agreements, and include, but are not limited to the following:
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- Paying income to or for on the benefit of the beneficiary;
Investing and reinvesting all or any part of the property held in the trust;
Keeping records of the trust's interest in the corpus of and the income from each such common investment or common fund; and
Selling, exchanging, assigning, transferring, or otherwise disposing of all or any part of any real or property held in trust.
- Paying income to or for on the benefit of the beneficiary;
The investing and record keeping activities of the trusts may be performed by other entities in an agency relationship with the trustee. The trustee, however, is principally responsible for ensuring that these activities are performed. Although the Beneficiaries' father did not actually perform the investing and record keeping activities, these activities are designated as the trustee's administrative duties for which he was responsible. Additionally, as enumerated in the trustee's agreements, the father was responsible for other administrative activities that may not have been delegated to other entities. In conclusion, because the father, as a trustee and resident of Virginia, was responsible for the administration of the Beneficiaries' trusts, these trusts were considered to be resident trusts of Virginia.
Based on the information provided, the Beneficiaries' trusts were being administered in Virginia and were considered resident trusts of Virginia for the taxable years 1992 through 1994. The original Virginia fiduciary returns were appropriately filed, therefore, there is no basis to allow the refunds requested on the amended 1992, 1993 and 1994 Virginia fiduciary returns. If you have further questions, you may contact ******* at********** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10757N
Rulings of the Tax Commissioner