                                 CODE OF VIRGINIA

TAX-RELATED PROVISIONS (§ 64.2-779.16)

A. As used in this section:
			&#8220;Grantor trust&#8221; means a trust as to which a settlor of a first
trust is considered the owner under &#xA7;&#xA7; 671 through 677 of the Internal
Revenue Code or &#xA7; 679 of the Internal Revenue Code.
			&#8220;Internal Revenue Code&#8221; means the United States Internal Revenue
Code of 1986.
			&#8220;Nongrantor trust&#8221; means a trust that is not a grantor trust.
			&#8220;Qualified benefits property&#8221; means property subject to the
minimum distribution requirements of &#xA7; 401(a)(9) of the Internal Revenue
Code and any applicable regulations, or to any similar requirements that refer
to &#xA7; 401(a)(9) of the Internal Revenue Code or the regulations.

B. An exercise of the decanting power is subject to the following limitations:

   1. If a first trust contains property that qualified, or would have qualified
   but for provisions of this article other than this section, for a marital
   deduction for purposes of the gift or estate tax under the Internal Revenue
   Code or a state gift, estate, or inheritance tax, the second-trust instrument
   must not include or omit any term that, if included in or omitted from the
   trust instrument for the trust to which the property was transferred, would
   have prevented the transfer from qualifying for the deduction, or would have
   reduced the amount of the deduction, under the same provisions of the Internal
   Revenue Code or state law under which the transfer qualified.

   2. If the first trust contains property that qualified, or would have
   qualified but for provisions of this article other than this section, for a
   charitable deduction for purposes of the income, gift, or estate tax under the
   Internal Revenue Code or a state income, gift, estate, or inheritance tax, the
   second-trust instrument must not include or omit any term that, if included in
   or omitted from the trust instrument for the trust to which the property was
   transferred, would have prevented the transfer from qualifying for the
   deduction, or would have reduced the amount of the deduction, under the same
   provisions of the Internal Revenue Code or state law under which the transfer
   qualified.

   3. If the first trust contains property that qualified, or would have
   qualified but for provisions of this article other than this section, for the
   exclusion from the gift tax described in &#xA7; 2503(b) of the Internal
   Revenue Code, the second-trust instrument must not include or omit a term
   that, if included in or omitted from the trust instrument for the trust to
   which the property was transferred, would have prevented the transfer from
   qualifying under &#xA7; 2503(b) of the Internal Revenue Code. If the first
   trust contains property that qualified, or would have qualified but for
   provisions of this article other than this section, for the exclusion from the
   gift tax described in &#xA7; 2503(b) of the Internal Revenue Code by
   application of &#xA7; 2503(c) of the Internal Revenue Code, the second-trust
   instrument must not include or omit a term that, if included or omitted from
   the trust instrument for the trust to which the property was transferred,
   would have prevented the transfer from qualifying under &#xA7; 2503(c) of the
   Internal Revenue Code.

   4. If the property of the first trust includes shares of stock in an S
   corporation, as defined in &#xA7; 1361 of the Internal Revenue Code, and the
   first trust is, or but for provisions of this article other than this section
   would be, a permitted shareholder under any provision of &#xA7; 1361 of the
   Internal Revenue Code, an authorized fiduciary may exercise the power with
   respect to part or all of the S-corporation stock only if any second trust
   receiving the stock is a permitted shareholder under &#xA7; 1361(c)(2) of the
   Internal Revenue Code. If the property of the first trust includes shares of
   stock in an S corporation and the first trust is, or but for provisions of
   this article other than this section would be, a qualified subchapter-S trust
   within the meaning of &#xA7; 1361(d) of the Internal Revenue Code, the
   second-trust instrument must not include or omit a term that prevents the
   second trust from qualifying as a qualified subchapter-S trust.

   5. If the first trust contains property that qualified, or would have
   qualified but for provisions of this article other than this section, for a
   zero inclusion ratio for purposes of the generation-skipping transfer tax
   under &#xA7; 2642(c) of the Internal Revenue Code the second-trust instrument
   must not include or omit a term that, if included in or omitted from the
   first-trust instrument, would have prevented the transfer to the first trust
   from qualifying for a zero inclusion ratio under &#xA7; 2642(c) of the
   Internal Revenue Code.

   6. If the first trust is directly or indirectly the beneficiary of qualified
   benefits property, the second-trust instrument may not include or omit any
   term that, if included in or omitted from the first-trust instrument, would
   have increased the minimum distributions required with respect to the
   qualified benefits property under &#xA7; 401(a)(9) of the Internal Revenue
   Code and any applicable regulations, or any similar requirements that refer to
   &#xA7; 401(a)(9) of the Internal Revenue Code or the regulations. If an
   attempted exercise of the decanting power violates the preceding sentence, the
   trustee is deemed to have held the qualified benefits property and any
   reinvested distributions of the property as a separate share from the date of
   the exercise of the power, and &#xA7; 64.2-779.19 applies to the separate
   share.

   7. If the first trust qualifies as a grantor trust because of the application
   of &#xA7; 672(f)(2)(A) of the Internal Revenue Code, the second trust may not
   include or omit a term that, if included in or omitted from the first-trust
   instrument, would have prevented the first trust from qualifying under &#xA7;
   672(f)(2)(A) of the Internal Revenue Code.

   8. In this subdivision, &#8220;tax benefit&#8221; means a federal or state tax
   deduction, exemption, exclusion, or other benefit not otherwise listed in this
   section, except for a benefit arising from being a grantor trust. Subject to
   subdivision 9, a second-trust instrument may not include or omit a term that,
   if included in or omitted from the first-trust instrument, would have
   prevented qualification for a tax benefit if:
   				a. The first-trust instrument expressly indicates an intent to qualify for
   the benefit or the first-trust instrument clearly is designed to enable the
   first trust to qualify for the benefit; and
   				b. The transfer of property held by the first trust or the first trust
   qualified, or would have qualified but for provisions of this article other
   than this section, would have qualified for the tax benefit.

   9. Subject to subdivision 4:
   				a. Except as otherwise provided in subdivision 7, the second trust may be
   a nongrantor trust, even if the first trust is a grantor trust; and
   				b. Except as otherwise provided in subdivision 10, the second trust may be
   a grantor trust, even if the first trust is a nongrantor trust.

   10. An authorized fiduciary may not exercise the decanting power if a settlor
   objects in a signed record delivered to the fiduciary within the notice period
   and:
   				a. The first trust and a second trust are both grantor trusts, in whole or
   in part, the first-trust instrument grants the settlor or another person the
   power to cause the first trust to cease to be a grantor trust, and the
   second-trust instrument does not grant an equivalent power to the settlor or
   other person; or
   				b. The first trust is a nongrantor trust and a second trust is a grantor
   trust, in whole or in part, with respect to the settlor, unless:

      1. The settlor has the power at all times to cause the second trust to cease
      to be a grantor trust; or

      2. The first-trust instrument contains a provision granting the settlor or
      another person a power that would cause the first trust to cease to be a
      grantor trust and the second-trust instrument contains the same provision.

C. If an authorized fiduciary that has limited distributive discretion over the
income or principal of a first trust reasonably determines that the overall
income, estate, gift, and generation-skipping tax consequences of the first
trust may be reduced by either (i) granting a general power of appointment to a
beneficiary of the first trust or (ii) eliminating a general power of
appointment granted to a beneficiary of the first trust, the fiduciary may
exercise the decanting power over all or any portion of the principal of the
trust to grant or eliminate such a general power of appointment and shall, in
addition, have the powers found in subsection D of § 64.2-779.8 as if the
fiduciary had expanded distributive discretion, subject to the following
provisions:

   1. In the case of the grant of a general power of appointment, the class of
   permissible appointees contained in the second trust shall be limited to the
   creditors of the powerholder or the creditors of the powerholder&#8217;s
   estate.

   2. In the case of the elimination of a general power of appointment, the class
   of permissible appointees in the second trust shall exclude the powerholder,
   the powerholder&#8217;s creditors, the powerholder&#8217;s estate, and the
   creditors of the powerholder&#8217;s estate, but shall otherwise be identical
   to the class of appointees permitted in the first trust.

HISTORY: 2017, c. 592.