                                 CODE OF VIRGINIA

DETERMINATION AND DISTRIBUTION OF NET INCOME (§ 64.2-1071)

A. This section applies when:

   1. The death of an individual results in the creation of an estate or trust;
   or

   2. An income interest in a trust terminates, whether the trust continues or is
   distributed.

B. A fiduciary of an estate or trust with an income interest that terminates
shall determine, under subsection G and Articles 4 (&#xA7; 64.2-1048 et seq.), 5
(&#xA7; 64.2-1051 et seq.), 6 (&#xA7; 64.2-1055 et seq.), 7 (&#xA7; 64.2-1064 et
seq.), and 9 (&#xA7; 64.2-1073 et seq.), the amount of net income and net
principal receipts received from property specifically given to a beneficiary.
The fiduciary shall distribute the net income and net principal receipts to the
beneficiary that is to receive the specific property.

C. A fiduciary shall determine the income and net income of an estate or income
interest in a trust that terminates, other than the amount of net income
determined under subsection B, under Articles 4 (§ 64.2-1048 et seq.), 5 (§
64.2-1051 et seq.), 6 (§ 64.2-1055 et seq.), 7 (§ 64.2-1064 et seq.), and 9
(§ 64.2-1073 et seq.), and by:

   1. Including in net income all income from property used or sold to discharge
   liabilities;

   2. Paying from income or principal, in the fiduciary&#8217;s discretion, fees
   of attorneys, accountants, and fiduciaries, court costs and other expenses of
   administration, and interest on estate and inheritance taxes and other taxes
   imposed because of the decedent&#8217;s death, but the fiduciary may pay the
   expenses from income of property passing to a trust for which the fiduciary
   claims a federal estate tax marital or charitable deduction only to the
   extent:
   				a. The payment of the expenses from income will not cause the reduction or
   loss of the deduction; or
   				b. The fiduciary makes an adjustment under subsection B of &#xA7;
   64.2-1070; and

   3. Paying from principal other disbursements made or incurred in connection
   with the settlement of the estate or the winding up of an income interest that
   terminates, including:
   				a. To the extent authorized by the decedent&#8217;s will, the terms of the
   trust, or applicable law, debts, funeral expenses, disposition of remains,
   family allowances, estate and inheritance taxes, and other taxes imposed
   because of the decedent&#8217;s death; and
   				b. Related penalties that are apportioned, by the decedent&#8217;s will,
   the terms of the trust, or applicable law, to the estate or income interest
   that terminates.

D. If a decedent&#8217;s will, the terms of a trust, or applicable law provides
for the payment of interest or the equivalent of interest to a beneficiary that
receives a pecuniary amount outright, the fiduciary shall make the payment from
net income determined under subsection C or from principal, to the extent net
income is insufficient.

E. If a beneficiary is to receive a pecuniary amount outright from a trust after
an income interest ends because of an income beneficiary&#8217;s death, and no
payment of interest or the equivalent of interest is provided for by the terms
of the trust or applicable law, the fiduciary shall pay the interest or the
equivalent of interest to which the beneficiary would be entitled under
applicable law if the pecuniary amount were required to be paid under a will.

F. A fiduciary shall distribute net income remaining after payments required by
subsections D and E in the manner described in &#xA7; 64.2-1072 to all other
beneficiaries, including a beneficiary that receives a pecuniary amount in
trust, even if the beneficiary holds an unqualified power to withdraw assets
from the trust or other presently exercisable general power of appointment over
the trust.

G. A fiduciary may not reduce principal or income receipts from property
described in subsection B because of a payment described in &#xA7; 64.2-1064 or
64.2-1065, to the extent the decedent&#8217;s will, the terms of the trust, or
applicable law requires the fiduciary to make the payment from assets other than
the property or to the extent the fiduciary recovers or expects to recover the
payment from a third party. The net income and principal receipts from the
property must be determined by including the amount the fiduciary receives or
pays regarding the property, whether the amount accrued or became due before,
on, or after the date of the decedent&#8217;s death or an income
interest&#8217;s terminating event, and making a reasonable provision for an
amount the estate or income interest may become obligated to pay after the
property is distributed.

HISTORY: 2022, c. 354.