Tax Type
Fiduciary Income Tax
Description
Residency
Topic
Taxpayers
Date Issued
06-22-1999
June 22, 1999
Re: Sec. 58.1-1821 Application: Fiduciary Income Tax
Dear***
This will reply to your letter in which you request refunds of fiduciary income tax on behalf of the ***** (the "Living Trust') and other trusts created by the Living Trust for the benefit of ***** ("Trust A, Trust B and Trust C' respectively) for the 1997 and 1998 taxable years respectively. I apologize for the delay in response.
FACTS
Living Trust
The grantor ("Grantor'), who was not a Virginia resident, set up a revocable living trust in her home state ("State A'). The Living Trust is a living marital trust in which the Grantor and her husband were named co-trustees and a Virginia resident as a successor co-trustee ("Virginia Trustee'). None of the beneficiaries are Virginia residents. Upon the Grantor's death, Virginia Trustee is directed to pay from the Living Trust all estate taxes charged with respect to the Grantor's gross estate for estate tax purposes, all expenses of administering the Grantor's probate estate, all legally enforceable claims against her estate, and all specific and pecuniary bequests made in her will that are not satisfied out of her probate estate. Upon the Grantor's death and the subsequent payment of all debts, taxes, expenses and bequests, the balance of the Living Trust is to be distributed to various beneficiaries in trust and then terminated.
Upon the Grantor's death in 1997, her will was probated in State A. Her husband and her attorney qualified in State A as co-executors of her estate. They are administering her estate under the jurisdiction and supervision of the courts of State A. Virginia Trustee administers the Living Trust in consultation with, and at the direction of the co-executors of the Grantor's estate. Virginia Trustee pays the debts, taxes, and expenses as the co-executors request, and distributes the balance to its beneficiaries.
Most of the assets of the Living Trust are securities. At the time of the Grantor's death, most of these securities were held in an account located in another state ("State B'). The Grantor's home in State A and tangible personal property are included in the Living Trust. Living Trust has small checking accounts in State A and Virginia for the benefit of the trustees. Since the Grantor's death, the securities have remained either in the State B bank; been distributed to beneficiaries; or sold for payment of estate debts. taxes, expenses and bequests.
Trust A
A share of the Living Trust went into Trust A, a marital trust for the benefit of the Grantor's husband. Originally the Grantor and her husband were co-trustees of the trust and the Virginia Trustee was named as successor trustee. Upon the Grantor's death, the husband became co-trustee with the Virginia Trustee.
Most of the assets of Trust A are securities. At the time of the Grantor's death, most of these securities were held in a State B account. Grantor's home in State A and tangible personal property are included in Trust A. Trust A has small checking accounts in State A and Virginia for the benefit of the trustees. Since the Grantor's death, the securities have either remained in the State B bank; been distribued to beneficiaries; or sold for payment of estate debts, taxes, expenses and bequests.
Trust B
A share of the Living Trust went into Trust B, a trust for the benefit of the Grantor's daughter. The beneficiary is co-trustee along with Virginia Trustee. Most of the trust assets are held in a Virginia brokerage account. Also, Virginia Trustee has a Virginia checking account to aid in the performing trustee duties.
Trust C
A share of the Living Trust went into Trust B, a trust for the benefit of the Grantor's son. Virginia Trustee is the sole trustee of this trust. Most of the trust assets are held in a Virginia brokerage account. Also, Virginia Trustee has a Virginia checking account to aid in the performing trustee duties.
Virginia Trustee contends that each trust lacks sufficient nexus to be subject to Virginia fiduciary income tax.
DETERMINATION
Virginia resident trusts and estates are subject to Virginia fiduciary income taxation. Pursuant to Code of Virginia Sec. 58.1-302, a "resident estate or trust' includes "[a] trust or estate which is being administered in the Commonwealth.' For each trust, the Virginia Trustee opened a small checking account in Virginia to facilitate the payment of estate debts, taxes, expenses and bequests. Records of the trusts' interest in the corpus and income from investment were kept by the Virginia Trustee. Virginia Trustee sold trust property to pay debts, taxes and to make distributions to beneficiaries. Clearly, these activities constitute the administration of a trust in the Commonwealth. Thus, under Code of Virginia Sec. 58.1-302, each trust would be a resident trust subject to Virginia taxation.
However, the department has found that even if a trust or an estate is a resident trust or estate, it must also have sufficient nexus with Virginia to be subject to taxation. See Public Document (P.D.) 93-189, copy enclosed. The determinative question is whether each trust has sufficient nexus to be subject to Virginia fiduciary taxation.
Virginia Trustee contends that the Grantor resided in State A prior to her death and the beneficiaries currently live in State A. In addition, the Virginia Trustee is only a successor co-trustee of the estate at the time the Living Trust and Trust A were created. Trust assets in Virginia accounted for less than one percent of the value of these two trusts. Also, the beneficiaries currently reside in State A.
P. D. 93-189 (8/26/93), copy enclosed, carves out a small exception to Code of Virginia Sec. 58.1-302 in that the department will consider more than the domicile of the grantor at the time the trust was created when the grantor is deceased. The department will also consider the current domicile of the trustee(s), beneficiaries, and the location of the trust property.
The department will not impose fiduciary income tax on a resident trust in situations in which a Virginia grantor is deceased and no other party or trust property is located in Virginia. If any of the other parties or property is located in Virginia, fiduciary income tax will be imposed. In the instant case, Virginia Trustee is domiciled in Virginia and a small portion of the trust's assets are located in Virginia.
The fact that the Virginia Trustee is a successor trustee rather than the original trustee is irrelevant because the Virginia Trustee is administering each trust, either solely or with the aid of a co-trustee. As such, the exception provided by P.D. 93-189 does not apply and the trusts are subject to Virginia fiduciary income tax.
Accordingly, your request for a refund of fiduciary income tax is denied. If you have any questions about this determination, you may contact ***** at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16746B
Re: Sec. 58.1-1821 Application: Fiduciary Income Tax
Dear***
This will reply to your letter in which you request refunds of fiduciary income tax on behalf of the ***** (the "Living Trust') and other trusts created by the Living Trust for the benefit of ***** ("Trust A, Trust B and Trust C' respectively) for the 1997 and 1998 taxable years respectively. I apologize for the delay in response.
FACTS
Living Trust
The grantor ("Grantor'), who was not a Virginia resident, set up a revocable living trust in her home state ("State A'). The Living Trust is a living marital trust in which the Grantor and her husband were named co-trustees and a Virginia resident as a successor co-trustee ("Virginia Trustee'). None of the beneficiaries are Virginia residents. Upon the Grantor's death, Virginia Trustee is directed to pay from the Living Trust all estate taxes charged with respect to the Grantor's gross estate for estate tax purposes, all expenses of administering the Grantor's probate estate, all legally enforceable claims against her estate, and all specific and pecuniary bequests made in her will that are not satisfied out of her probate estate. Upon the Grantor's death and the subsequent payment of all debts, taxes, expenses and bequests, the balance of the Living Trust is to be distributed to various beneficiaries in trust and then terminated.
Upon the Grantor's death in 1997, her will was probated in State A. Her husband and her attorney qualified in State A as co-executors of her estate. They are administering her estate under the jurisdiction and supervision of the courts of State A. Virginia Trustee administers the Living Trust in consultation with, and at the direction of the co-executors of the Grantor's estate. Virginia Trustee pays the debts, taxes, and expenses as the co-executors request, and distributes the balance to its beneficiaries.
Most of the assets of the Living Trust are securities. At the time of the Grantor's death, most of these securities were held in an account located in another state ("State B'). The Grantor's home in State A and tangible personal property are included in the Living Trust. Living Trust has small checking accounts in State A and Virginia for the benefit of the trustees. Since the Grantor's death, the securities have remained either in the State B bank; been distributed to beneficiaries; or sold for payment of estate debts. taxes, expenses and bequests.
Trust A
A share of the Living Trust went into Trust A, a marital trust for the benefit of the Grantor's husband. Originally the Grantor and her husband were co-trustees of the trust and the Virginia Trustee was named as successor trustee. Upon the Grantor's death, the husband became co-trustee with the Virginia Trustee.
Most of the assets of Trust A are securities. At the time of the Grantor's death, most of these securities were held in a State B account. Grantor's home in State A and tangible personal property are included in Trust A. Trust A has small checking accounts in State A and Virginia for the benefit of the trustees. Since the Grantor's death, the securities have either remained in the State B bank; been distribued to beneficiaries; or sold for payment of estate debts, taxes, expenses and bequests.
Trust B
A share of the Living Trust went into Trust B, a trust for the benefit of the Grantor's daughter. The beneficiary is co-trustee along with Virginia Trustee. Most of the trust assets are held in a Virginia brokerage account. Also, Virginia Trustee has a Virginia checking account to aid in the performing trustee duties.
Trust C
A share of the Living Trust went into Trust B, a trust for the benefit of the Grantor's son. Virginia Trustee is the sole trustee of this trust. Most of the trust assets are held in a Virginia brokerage account. Also, Virginia Trustee has a Virginia checking account to aid in the performing trustee duties.
Virginia Trustee contends that each trust lacks sufficient nexus to be subject to Virginia fiduciary income tax.
DETERMINATION
Virginia resident trusts and estates are subject to Virginia fiduciary income taxation. Pursuant to Code of Virginia Sec. 58.1-302, a "resident estate or trust' includes "[a] trust or estate which is being administered in the Commonwealth.' For each trust, the Virginia Trustee opened a small checking account in Virginia to facilitate the payment of estate debts, taxes, expenses and bequests. Records of the trusts' interest in the corpus and income from investment were kept by the Virginia Trustee. Virginia Trustee sold trust property to pay debts, taxes and to make distributions to beneficiaries. Clearly, these activities constitute the administration of a trust in the Commonwealth. Thus, under Code of Virginia Sec. 58.1-302, each trust would be a resident trust subject to Virginia taxation.
However, the department has found that even if a trust or an estate is a resident trust or estate, it must also have sufficient nexus with Virginia to be subject to taxation. See Public Document (P.D.) 93-189, copy enclosed. The determinative question is whether each trust has sufficient nexus to be subject to Virginia fiduciary taxation.
Virginia Trustee contends that the Grantor resided in State A prior to her death and the beneficiaries currently live in State A. In addition, the Virginia Trustee is only a successor co-trustee of the estate at the time the Living Trust and Trust A were created. Trust assets in Virginia accounted for less than one percent of the value of these two trusts. Also, the beneficiaries currently reside in State A.
P. D. 93-189 (8/26/93), copy enclosed, carves out a small exception to Code of Virginia Sec. 58.1-302 in that the department will consider more than the domicile of the grantor at the time the trust was created when the grantor is deceased. The department will also consider the current domicile of the trustee(s), beneficiaries, and the location of the trust property.
The department will not impose fiduciary income tax on a resident trust in situations in which a Virginia grantor is deceased and no other party or trust property is located in Virginia. If any of the other parties or property is located in Virginia, fiduciary income tax will be imposed. In the instant case, Virginia Trustee is domiciled in Virginia and a small portion of the trust's assets are located in Virginia.
The fact that the Virginia Trustee is a successor trustee rather than the original trustee is irrelevant because the Virginia Trustee is administering each trust, either solely or with the aid of a co-trustee. As such, the exception provided by P.D. 93-189 does not apply and the trusts are subject to Virginia fiduciary income tax.
Accordingly, your request for a refund of fiduciary income tax is denied. If you have any questions about this determination, you may contact ***** at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16746B
Rulings of the Tax Commissioner