August 9, 2016
Re: Request for Ruling: Fiduciary Income Tax
Dear *****:
This will reply to your letter in which you request a ruling regarding the filing requirements of a testamentary trust.
FACTS
An individual (the “Decedent”) was a Virginia resident at the time of her death. By the terms of her will, a trust (the “Trust”) will be created for the benefit of her son during his lifetime. At his death, the remaining Trust assets will be distributed to his surviving descendants. The trustee will be a trust company which has no operations in Virginia, and none of the Trust's property will be located in Virginia. A Virginia court supervises the administration of the Decedent's estate (the “Estate”). The Estate may request that the court retain supervision over the Trust or transfer supervision to an out-of-state court. You request a ruling as to whether the Trust will be required to file a Virginia fiduciary income tax return.
DETERMINATION
Resident Trust
Pursuant to Va. Code § 58.1-381, every resident trust required to file a federal income tax return for the taxable year must also file a Virginia fiduciary income tax return. Pursuant to Va. Code § 58.1-302, a resident trust includes “a trust created by will of a decedent who at his death was domiciled in the Commonwealth.” In addition, trusts that are administered in Virginia are also considered resident trusts. See id. A trust is considered to be administered in Virginia if its assets are located in Virginia, its fiduciary is a resident of Virginia, or it is under the supervision of a Virginia court. See Title 23 of the Virginia Administrative Code (VAC) 10-115-10.
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. The domiciliary residence of a person means his permanent place of residence and the place to which he intends to return even though he may reside elsewhere. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.
In this case, you state that the Decedent was a resident of Virginia at the time of her death. For purposes of this ruling, the Department will assume that the Decedent was a domiciliary resident of Virginia. As such, the Trust will be a Virginia resident trust regardless of whether it remains under the supervision of a Virginia court. In addition, such supervision would also provide an independent basis for classifying the Trust as a Virginia resident trust.
Nexus
The Department has found that even if a trust is a resident trust, it must also have sufficient nexus with Virginia to be subject to taxation. See Public Document (P.D.) 93-189 (8/26/1993). Pursuant to P.D. 93-189, when the grantor is deceased, the Department will consider more than the domicile of the grantor at the time the trust was created. The Department will also consider the current domicile of the trustee(s) and 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, however, fiduciary income tax will be imposed.
In this case, neither the trustee nor the Trust assets will be located in Virginia. In addition, none of the Trust's beneficiaries are or have been Virginia residents. For the purposes of this ruling, the Department assumes that the beneficiaries will continue to be Virginia nonresidents. As a result, the Trust will not have sufficient nexus to be subject to Virginia fiduciary income tax. In the Department's opinion, the fact that the Trust may continue to be supervised to some extent by a Virginia court does not change the result, even if the trustees are required to file an inventory and accountings with the local Commissioner of Accounts. See Pennoyer v. Taxation Div. Dir., 5 N.J. Tax 386, 398-99 (1983).
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6190517426.M