Virginia: Residency of Estates and Trusts No Longer Determined by Location of Administration
Resident estates and trusts are subject to Virginia state income tax on nearly all of their federal taxable income1. Effective July 1, 2019, recently enacted House Bill 2526 (HB2526) modifies the definition of a resident estate or trust for Virginia state income tax purposes2. HB2526 significantly impacts the tax treatment of estates and trusts being administered in Virginia. Specifically, estates and trusts will no longer be considered Virginia residents solely as a result of being administered in Virginia. This means that for some such estates and trusts—they may avoid Virginia state income tax.
Pre-HB2526, the Virginia Code §58.1-302 defined “resident estate or trust” using four distinct categories:
- The estate of a decedent who at his death was domiciled in the Commonwealth;
- A trust created by will of a decedent who at his death was domiciled in the Commonwealth; or
- A trust created by or consisting of property of a person domiciled in the Commonwealth; or
- A trust or estate which is being administered in the Commonwealth.
Thus, under pre-HB2526, estates and trusts being administered in Virginia were considered “resident estates or trusts” – including such estates and trusts of individuals domiciled outside of Virginia. As such, these estates and trusts were still subject to the Virginia state income tax imposed upon essentially all of the estate’s or trust’s federal taxable income.
Again, effective July 1, 2019, HB2526 removed the fourth category of “resident estate or trust.” Therefore, the location of trust or estate administration is no longer part of the definition of “resident estate or trust.” As such, estates and/or trusts being administered in Virginia that do not meet the other residency requirements will be considered non-resident estates and trusts. This is good news, because these estates and trusts should only be taxed on Virginia source income.3
If you have tax questions or concerns call Frost Law at (410) 497-5947.
1Va. Code Ann. § 58.1-361(A); Va. Regs. § 10-115-40(A); Virginia Form 770, Fiduciary Income Tax Return and Instructions.
2Virginia Governor Northam approved HB2526 on February 15, 2019.
3Va. Code Ann. § 58.1-362; Va. Regs. § 10-115-50; Virginia Form 770, Fiduciary Income Tax Return and Instructions.
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