Virginia Code 64.2-776: Discretionary powers; tax savings.
A. Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of such terms as “absolute,” “sole,” or “uncontrolled,” the trustee shall exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.
Terms Used In Virginia Code 64.2-776
- Ascertainable standard: means a standard relating to an individual's health, education, support, or maintenance within the meaning of § 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code of 1986 and any applicable regulations. See Virginia Code 64.2-701
- Court: means the court of the Commonwealth having jurisdiction in matters related to trusts. See Virginia Code 64.2-701
- Includes: means includes, but not limited to. See Virginia Code 1-218
- Interests of the beneficiaries: means the beneficial interests provided in the terms of the trust. See Virginia Code 64.2-701
- Marital deduction: The deduction(s) that can be taken in the determination of gift and estate tax liabilities because of the existence of a marriage or marital relationship.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Person: means an individual; estate; business or nonprofit entity; government; governmental subdivision, agency, or instrumentality; public corporation; or other legal entity. See Virginia Code 64.2-701
- Settlor: except as otherwise provided in § Virginia Code 64.2-701
- Trustee: A person or institution holding and administering property in trust.
- Trustee: includes an original, additional, and successor trustee and a cotrustee. See Virginia Code 64.2-701
B. Subject to subsection D, and unless the terms of the trust expressly indicate that a rule in this subsection does not apply:
1. A person other than a settlor who is a beneficiary and trustee of a trust that confers on the trustee a power to make discretionary distributions to or for the trustee’s personal benefit may exercise the power only in accordance with an ascertainable standard; and
2. A trustee may not exercise a power to make discretionary distributions to satisfy a legal obligation of support that the trustee personally owes another person.
For purposes of this subsection, “trustee” includes a person who is deemed to have any power of a trustee, whether because such person has the right to remove or replace any trustee or because a reciprocal trust or power doctrine applies.
C. A power whose exercise is limited or prohibited by subsection B may be exercised by a majority of the remaining trustees whose exercise of the power is not so limited or prohibited. If the power of all trustees is so limited or prohibited, the court may appoint a special fiduciary with authority to exercise the power.
D. Subsection B does not apply to:
1. A power held by the settlor’s spouse who is the trustee of a trust for which a marital deduction, as defined in § 2056(b)(5) or 2523(e) of the Internal Revenue Code of 1986, as in effect on the effective date of this chapter, or as later amended, was previously allowed;
2. Any trust during any period that the trust may be revoked or amended by its settlor; or
3. A trust if contributions to the trust qualify for the annual exclusion under § 2503(c) of the Internal Revenue Code of 1986, as in effect on the effective date of this chapter, or as later amended.