20.2 Virginia’s Uniform Trust Code

20.2 VIRGINIA'S UNIFORM TRUST CODE

20.201 Enactment. In 2005, the Virginia General Assembly adopted the Uniform Trust Code (UTC), originally drafted by the National Conference of Commissioners on Uniform State Laws (NCCUSL), with relatively slight modifications to conform to Virginia law and practice. The Virginia Uniform Trust Code (VUTC) is located in chapter 7 of title 64.2 of the Code of Virginia. ³ The VUTC is essentially a complete restatement and codification of the law of trusts for Virginia, although the common law supplements the VUTC where the VUTC is silent.

20.202 Effective Date. The effective date of the VUTC was July 1, 2006.

20.203 Reasons for Enactment. The increased use of trusts led to the recognition that existing law provided insufficient or unsuitable guidance for trust administration. Prior to the VUTC, Virginia's trust law was scattered throughout the Virginia Code in titles 26, 55, and 64.1 and elsewhere, and was further modified by case law. The VUTC was enacted to provide a convenient and accessible codification of the law of trusts. The VUTC also promotes uniformity of law among the states, which is increasingly important as the nation's wealth becomes more portable.

Many of Virginia's neighbors have adopted the UTC (with some variations), including the District of Columbia, Tennessee, and North Carolina. Va. Code § 64.2-805 specifically provides that, in applying and construing the VUTC, "consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it." To that end, the NCCUSL commentaries to the UTC will be particularly useful in interpreting the VUTC.

20.204 Structure. The VUTC is organized into 11 articles that address the following topics:

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A. Article 1: General Provisions and Definitions. ⁴ Article 1 addresses the scope of the VUTC, provides definitions, articulates default and mandatory rules, and addresses choice of law issues, procedures for transferring a trust's principal place of administration, and miscellaneous topics not covered in other articles.

B. Article 2: Judicial Proceedings. ⁵ Article 2 concerns judicial proceedings and the court's role in the administration of trusts.

C. Article 3: Representation. ⁶ Article 3 addresses representation of beneficiaries and other interested persons, both by fiduciaries and through virtual representation. This article sets forth principles for the settlement of disputes and the giving of required notices and consents to certain actions.

D. Article 4: Creation, Validity, Modification, and Termination of Trust. ⁷ Article 4 sets forth requirements for creating, modifying, and terminating trusts. Va. Code § 64.2-719 provides that

a circuit court, upon petition from an interested party, may create and establish a trust with such trustee and such terms as the court determines. In an order creating and establishing the trust, the court shall determine whether the trustee shall have a duty to qualify in the clerk's office; post bond, with or without surety; or file an inventory and annual accounting with the commissioner of accounts as would apply to a testamentary trustee.

E. Article 5: Creditor's Claims; Spendthrift and Discretionary Trusts. ⁸ Article 5 concerns spendthrift provisions and other issues relating to the rights of creditors.

F. Article 6: Revocable Trusts. ⁹ Article 6 deals with revocable trusts, including the standard of capacity to create a trust, presumptions of

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revocability, procedures for revocation or modification of trusts, and limitations on actions to contest the validity of trusts.

G. Article 7: Office of Trustee. ¹⁰ Article 7 concerns the office of trustee, including the trustee's acceptance, resignation, removal, and replacement. It also addresses trustee compensation and the rights and duties of co-trustees.

H. Article 8: Duties and Powers of Trustee. ¹¹ Article 8 enumerates the trustee's duties and powers.

I. Article 9: Uniform Prudent Investor Act. ¹² Article 9 sets forth Virginia's Uniform Prudent Investor Act, which applies to all fiduciaries, including trustees. Absent a valid contrary provision in the governing instrument, this article provides the standards by which a trustee is required to invest trust assets and the trustee's duties with regard to investing.

J. Article 10: Liability of Trustees and Rights of Persons Dealing with Trustee. ¹³ Article 10 concerns the liability of trustees, statutes of limitation, rights of beneficiaries, and relations with and rights of third parties.

K. Article 11: Miscellaneous Provisions. ¹⁴ Article 11 covers miscellaneous matters such as the UTC's applicability to trusts already in existence, severability, and electronic records and signatures.

20.205 Applicability.

A. Inter Vivos and Testamentary Trusts. The VUTC applies to express inter vivos trusts and testamentary trusts, except to the extent that specific provision is made for them in chapter of 12 title 64.2 ¹⁵ or other parts apply, or the particular VUTC provision is clearly not applicable. ¹⁶ The

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VUTC expressly provides that Va. Code § 64.2-775, concerning the trustee's duties to inform and report to beneficiaries, applies to testamentary trusts. ¹⁷ The VUTC does not apply to Virginia nonstock corporations. ¹⁸

The VUTC differs from the NCCUSL version of the UTC by preserving Virginia's traditional distinction between inter vivos and testamentary trusts. Under Va. Code § 64.2-1400 et seq., testamentary trustees are still required to qualify before the clerk or court. They are also required to furnish bond and file an inventory and annual accountings with the commissioner of accounts, unless these requirements are waived.

B. Other Types of Trusts. The VUTC does not apply to commercial or business trusts, employment trusts, trusts used for escrow, or other special purpose trusts, but a court may apply VUTC principles to such trusts if appropriate to resolve issues. ¹⁹

C. Applicability to Existing Trusts. The VUTC applies to:

Rules of construction and presumptions under the VUTC apply to trust instruments executed before July 1, 2006 unless the terms of the trust clearly provide otherwise. ²¹ The VUTC, however, does not apply to an act done before July 1, 2006 and to rights "acquired, extinguished, or barred upon the expiration of a prescribed period that has commenced to run under any other statute before July 1, 2006." ²²

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20.206 General Provisions.

A. Default Provision. ²³ The VUTC is a default statute. Thus, with a few exceptions set forth in the VUTC, the language in the trust instrument prevails over the VUTC to the extent that the VUTC and the trust provisions conflict.

B. Mandatory Provisions. Mandatory provisions of the VUTC include:

C. Checklist of VUTC Provisions That May Be Overridden by the Grantor. Below is a partial checklist of areas in which the VUTC provides for variation by the grantor in the terms of the governing instrument. Many of the VUTC default provisions serve as useful drafting guidance or provide protections with respect to the administration of trusts. Caution should be exercised in deciding to override the VUTC, and extra caution should be taken with respect to charitable trusts. Because of the many areas in which the grantor may override the VUTC, it is important to carefully review the terms of the governing instrument alongside the VUTC to determine with accuracy the rights, powers, and duties of the trustee.

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