2006 Code of Virginia § 55-277.4 - Fiduciary\'s power to adjust

55-277.4. Fiduciary's power to adjust.

A. A fiduciary may adjust between principal and income to the extent thefiduciary considers necessary if the fiduciary invests and manages trustassets as a prudent investor, the terms of the trust describe the amount thatmay or must be distributed to a beneficiary by referring to the trust'sincome, and the fiduciary determines, after applying the rules in subsectionA of 55-277.3, that the fiduciary is unable to comply with subsection B of 55-277.3.

B. In deciding whether and to what extent to exercise the power conferred bysubsection A, a fiduciary shall consider all factors relevant to the trustand its beneficiaries, including the following factors to the extent they arerelevant:

1. The nature, purpose, and expected duration of the trust;

2. The intent of the settlor;

3. The identity and circumstances of the beneficiaries;

4. The needs for liquidity, regularity of income, and preservation andappreciation of capital;

5. The assets held in the trust; the extent to which they consist offinancial assets, interests in closely held enterprises, tangible andintangible personal property, or real property; the extent to which an assetis used by a beneficiary; and whether an asset was purchased by the fiduciaryor received from the settlor;

6. The net amount allocated to income under the other sections of thischapter and the increase or decrease in the value of the principal assets,which the fiduciary may estimate as to assets for which market values are notreadily available;

7. Whether and to what extent the terms of the trust give the fiduciary thepower to invade principal or accumulate income or prohibit the fiduciary frominvading principal or accumulating income, and the extent to which thefiduciary has exercised a power from time to time to invade principal oraccumulate income;

8. The actual and anticipated effect of economic conditions on principal andincome and effects of inflation and deflation; and

9. The anticipated tax consequences of an adjustment.

C. A fiduciary may not make an adjustment:

1. That diminishes the income interest in a trust that requires all of theincome to be paid at least annually to a spouse and for which an estate taxor gift tax marital deduction would be allowed, in whole or in part, if thefiduciary did not have the power to make the adjustment;

2. That reduces the actuarial value of the income interest in a trust towhich a person transfers property with the intent to qualify for a gift taxexclusion;

3. That changes the amount payable to a beneficiary as a fixed annuity or afixed fraction of the value of the trust assets;

4. From any amount that is permanently set aside for charitable purposesunder a will or the terms of a trust unless both income and principal are soset aside;

5. If possessing or exercising the power to make an adjustment causes anindividual to be treated as the owner of all or part of the trust for incometax purposes, and the individual would not be treated as the owner if thefiduciary did not possess the power to make an adjustment;

6. If possessing or exercising the power to make an adjustment causes all orpart of the trust assets to be included for estate tax purposes in the estateof an individual who has the power to remove a fiduciary or appoint afiduciary, or both, and the assets would not be included in the estate of theindividual if the fiduciary did not possess the power to make an adjustment;

7. If the fiduciary is a beneficiary of the trust; or

8. If the fiduciary is not a beneficiary, but the adjustment would benefitthe fiduciary directly or indirectly.

D. If subdivision C 5, 6, 7, or 8 applies to a fiduciary and there is morethan one fiduciary, a cofiduciary to whom the provision does not apply maymake the adjustment unless the exercise of the power by the remainingfiduciary or fiduciaries is not permitted by the terms of the trust. Anybeneficiary or fiduciary may petition the circuit court for appointment of acofiduciary who would be permitted to make an adjustment not permitted by theother fiduciary or fiduciaries.

E. A fiduciary may release the entire power conferred by subsection A or mayrelease only the power to adjust from income to principal or the power toadjust from principal to income if the fiduciary is uncertain about whetherpossessing or exercising the power will cause a result described insubdivisions C 1 through 6 or C 8 or if the fiduciary determines thatpossessing or exercising the power will or may deprive the trust of a taxbenefit or impose a tax burden not described in subsection C. The release maybe permanent or for a specified period, including a period measured by thelife of an individual.

F. Terms of a trust that limit the power of a fiduciary to make an adjustmentbetween principal and income do not affect the application of this sectionunless it is clear from the terms of the trust that the terms are intended todeny the fiduciary the power of adjustment conferred by subsection A.

G. As used in this section and the application of this section elsewhere inthis chapter, the term "trust" includes the assets under the control ormanagement of a personal representative.

(1999, c. 975; 2005, c. 935.)