Tax Type
Fiduciary Income Tax
Income Tax
Description
Residency of a Trust; Fiduciary Income
Topic
Nexus
Residency
Taxability of Persons and Transactions
Date Issued
02-05-2013
February 5, 2013
Re: Ruling Request: Residency of a Trust
Dear *****:
This is in response to your letter, dated August 10, 2012, requesting a ruling addressing whether the enclosed trust ("the Trust") has nexus with Virginia and whether the Trust is required to file a Virginia fiduciary income tax return.
FACTS
The Trust is an irrevocable, inter vivos trust created in Florida and governed by Florida law. The grantor was a Florida resident at the time the Trust was created. The grantor has never resided in Virginia and the Trust does not own property in Virginia.
The Trust is being administered in Florida by a committee of two co-trustees. One co-trustee ("Co-Trustee 1") is a corporate trustee located in Florida. The other co-trustee ("Co-Trustee ?") is an individual and a Virginia resident. Co-Trustee 2 is also the beneficiary of the Trust.
The Trust requires Co-Trustee 2 to serve with an independent co-trustee at all times. Co-Trustee 2 may replace any independent trustee without restriction, but must replace that independent trustee with another independent trustee. The Trust provides that the co-trustees must make decisions by majority.
As the beneficiary of the Trust, Co-Trustee 2 may receive distributions of principal or income which the co-trustees determine are necessary for the health, education, support and maintenance needs of Co-Trustee 2 during his lifetime. Co-Trustee 1 may distribute income or principal to Co-Trustee 2 for any purpose that Co-Trustee 1 determines is in Co-Trustee 2's best interest.
DETERMINATION
Virginia Code § 58.1-381 provides that all resident trusts which are required to file a federal income tax return or that have any Virginia taxable income must file an income tax return in Virginia. "Resident trust" is defined in Va. Code § 58.1-302 as:
- The estate of a decedent who at his death was domiciled in the Commonwealth;
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The Trust does not fit within the first three definitions of a resident trust under Va. Code § 58.1-302. Therefore, the relevant issue is whether the Trust is being administered in Virginia.
Section 23 V.A.C. 10-115-10 of the Virginia Administrative Code 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." Therefore, the general rule is that a trust is being administered in Virginia if its trustee is a resident of Virginia.
In Public Document (P.D.) 02-101, the Department analyzed whether adding a Virginia resident to a committee which directed the trustee would cause the trust to become a resident trust for Virginia income tax purposes. The Department determined that adding a Virginia resident to such a committee would not cause the trust to become a resident trust. No member of the committee could exercise authority over the trust individually. Instead, the committee made decisions by majority or the consensus of its members. Therefore, it was the Committee that administered the trust and not the individual members. As long as the committee did not operate in Virginia or was not controlled in Virginia, membership in the committee by a Virginia resident would not make the trust a resident trust for Virginia income tax purposes.
Similarly, in P.D. 07-164, the Department analyzed whether the inclusion of a Virginia resident trustee in committees of trustees would cause the trusts to become resident trusts for Virginia income tax purposes. The Department determined that the inclusion of a Virginia resident trustee did not cause the trusts to become resident trusts. The trustees could not make decisions individually. Instead, the trustees made decisions by majority or consensus. Therefore, as long as the committees of the trusts did not operate in Virginia and were not controlled in Virginia, the inclusion of a Virginia resident trustee in the committees of trustees would not make the trusts resident trusts for Virginia income tax purposes.
In the present case, Co-Trustee 2 is a resident of Virginia, but he cannot make decisions regarding the Trust individually. Instead, any power or discretion that he has over the Trust may be exercised only if Co-Trustee 1 agrees. Therefore, the Trust is not being administered in Virginia and is not a resident trust for Virginia income tax purposes. The Trust is not required to file a Virginia fiduciary income tax return.
CONCLUSION
Based on the forgoing, the Trust is not a resident trust for Virginia income tax purposes and the Trust is not required to file a Virginia fiduciary income tax return. The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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PD/1-5166885803
Rulings of the Tax Commissioner