Virginia Amends Residency Definition for Estates and Trusts

On February 15, Virginia amended its estate/trust residency statute by removing one of the definitions used to determine whether an estate or trust is a resident, and therefore subject to Virginia taxation. Prior to the amendment, under § 58.1-302 of the Code of Virginia, a Virginia “resident estate or trust” was defined as:

1. The estate of a decedent who at his death was domiciled in the Commonwealth;
2. A trust created by will of a decedent who at his death was domiciled in the Commonwealth;
3. A trust created by or consisting of property of a person domiciled in the Commonwealth; or
4. A trust or estate which is being administered in the Commonwealth.

Effective July 1, 2019, the fourth and ultimate definition will no longer be included in defining a resident estate or trust in Virginia. This is good news for some estates and trusts currently being administered in Virginia, since this may change whether they are still subject to Virginia income tax.

An estate or trust is generally subject to income tax in the state in which it is considered to be a “resident.” Each state’s definition of a “resident” estate or trust is different, and overlooking state residency for an estate or trust can be costly. This is particularly important in the Washington, D.C. metro area, since a trust or estate may have multi-state filing requirements in D.C., Maryland, or Virginia.

With this in mind, the definitions for “resident” estates and trusts in Maryland and Washington, D.C. are listed below:

In Maryland, an estate is considered a Maryland resident if the decedent was domiciled in Maryland at his/her date of death. A trust is considered a resident if:

1. The trust was created, or consists of property transferred, by the will of the decedent who was domiciled in Maryland on the date of the decedent’s death;
2. The creator of grantor of the trust is a current Maryland resident; or
3. The trust is principally administered in Maryland.

In Washington, D.C., if a decedent was domiciled within the District at his/her date of death, the estate is a resident and any trust created by the will is a resident trust. Additionally, a trust is considered a resident if:

1. The creator of a trust was at the time the trust was created domiciled within the District;
2. The trust consists of property of a person domiciled within the District; or
3. The trust resulted from the dissolution of a corporation organized under the laws of the District.

State residency laws are complex and obviously subject to amendment. If you are settling or have settled one or more trusts, or if you are an executor or trustee for an existing estate or trust, consult with dedicated tax experts to ensure you understand the state residency implications and filing requirements for your estate or trust.

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