1600 Words About a 100-Word Addition to Virginia Trust Law (Part I)

April 7, 2011

300px Seal of Virginia.svg  150x150 1600 Words About a 100 Word Addition to Virginia Trust Law (Part I)

In the closing weeks of March, Virginia Governor Bob McDonnell signed a bill into law that expands individuals’ protections against creditors.  The law adds wording to VA Code § 55-545.05 that clarifies:  1) the effects of annual gifting into an irrevocable trust and 2) the protections given by an “inter-vivos marital deduction trust”.  As a result, Virginia’s version of this section now deviates from the Uniform Trust Code (UTC).

Boring!!!  What possible relevance does this have in my life?

Well, beyond satisfying your intellectual curiosity and helping you maintain your civic duty of keeping up with the law, we present the new law here as a nice avenue for introducing several advanced estate planning topics we have not covered on the blog before, including the UTC, inter-vivos marital deduction trusts, self-settled trusts, QTIP trusts, and power of appointment trusts.

It is also an interesting example of how different states interpret certain problems differently from other states.  It shows the difficulties inherent in seeking uniformity between various state laws.  Additionally, it touches upon the epistemological question of how we seek truth – when creating laws, should we rely on majority rule, authority, revelation, practice …

All right, all right, all right.  Let’s go back to the beginning.  What is the Uniform Trust Code?

There is a non-profit group called the National Conference of Commissioners on Uniform State Laws (NCCUSL) whose membership includes judges, legislators and legal scholars appointed by each state.  Its job is to debate what laws should have uniformity amongst all of the states.  It also drafts model legislation that is presented to each state for potential passage into law.  The NCCUSL was instrumental in creating familiar laws such as the Uniform Commercial Code and the Uniform Transfers to Minors Act.

The UTC is the NCCUSL’s attempt to unify trust law throughout the country.  This effort is important because trusts are becoming increasingly common and because more people are living in different states during their lifetimes.

Has the effort to pass the UTC in all the states been successful?

As of today, 23 states (including Virginia, Pennsylvania & DC, but not Maryland) have adopted some form of the UTC, and so far, 4 other states have introduced bills for its passage in 2011.

You said before that Virginia’s law now differs from the UTC.  Why deviate?

The state’s history and traditions cannot be ignored.  Virginia was founded as a colony in 1607, and thus has had various laws and cases regarding trusts for almost 400 years before it adopted the UTC in 2005.  Virginia’s new law reflects that the earlier tradition conflicted with the wording in one section of the UTC, and so a change needed to be made to clarify the ambiguity.

So what was the ambiguity about?

Trusts have been around for hundreds of years.  One of their greatest benefits that has developed over this time is their ability to protect assets from an individual’s creditors.  In general, the legal system allows people to contribute their own assets into a trust and gain protection in exchange for giving up certain rights to their assets.

The UTC attempts to clarify creditors’ rights to get at the trust assets in its Section 505, entitled “Creditor’s Claim Against Settlor”.  Virginia originally approved this section exactly as written, in VA Code § 55-545.05.  However, over time, Virginia deemed this section unclear as applied to the two estate planning techniques listed earlier.

More to come!

 1600 Words About a 100 Word Addition to Virginia Trust Law (Part I)
 1600 Words About a 100 Word Addition to Virginia Trust Law (Part I)

Scott

Scott R. Zucker, Esq. is the owner of The Zucker Law Firm PLLC, located just outside the Capital Beltway in Annandale, within five miles of the City of Fairfax, the county seat of beautiful Fairfax County, Virginia. The firm focuses mainly on estate planning services for Virginia, Maryland and Pennsylvania clientele, and seeks to do so in an affordable and approachable way. People interested in learning more can contact Scott by phone or email.

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