                                 CODE OF VIRGINIA

ADJUSTMENT BETWEEN INCOME AND PRINCIPAL BECAUSE OF TAXES (§ 64.2-1070)

A. A fiduciary may make an adjustment between income and principal to offset the
shifting of economic interests or tax benefits between current income
beneficiaries and successor beneficiaries that arises from:

   1. An election or decision the fiduciary makes regarding a tax matter, other
   than a decision to claim an income tax deduction to which subsection B
   applies;

   2. An income tax or other tax imposed on the fiduciary or a beneficiary as a
   result of a transaction involving the fiduciary or a distribution by the
   fiduciary; or

   3. Ownership by the fiduciary of an interest in an entity a part of whose
   taxable income, whether or not distributed, is includable in the taxable
   income of the fiduciary or a beneficiary.

B. If the amount of an estate tax marital or charitable deduction is reduced
because a fiduciary deducts an amount paid from principal for income tax
purposes instead of deducting it for estate tax purposes and, as a result,
estate taxes paid from principal are increased and income taxes paid by the
fiduciary or a beneficiary are decreased, the fiduciary shall charge each
beneficiary that benefits from the decrease in income tax to reimburse the
principal from which the increase in estate tax is paid. The total reimbursement
must equal the increase in the estate tax, to the extent the principal used to
pay the increase would have qualified for a marital or charitable deduction but
for the payment. The share of the reimbursement for each fiduciary or
beneficiary whose income taxes are reduced must be the same as its share of the
total decrease in income tax.

C. A fiduciary that charges a beneficiary under subsection B may offset the
charge by obtaining payment from the beneficiary, withholding an amount from
future distributions to the beneficiary, or adopting another method or
combination of methods.

HISTORY: 2022, c. 354.