By James Cox*
In part as a result of the increasing use of trusts in estate planning and the lack of a comprehensive codification of the law of trusts, the Virginia Assembly adopted effective July 1, 2006, the Virginia version of the Uniform Trust Code (UTC). West Virginia followed suit, and adopted the Uniform Trust Code effective July 1, 2011. The following Emerging Issues Analysis explores the provisions of the Uniform Trust Code in both states.
In Virginia, after the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory allowances to a surviving spouse and children including the family allowance, the right to exempt property, and the homestead allowance to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances. The provisions of this section of the UTC shall not apply to life insurance proceeds under § 38.2‑3122. Prior to commencing a proceeding to subject a trustee, trust assets or distributees of such assets to such claims and expenses, the creditor or claimant must send a written demand to the personal representative of the settlor. The proceeding shall be commenced no later than two years following the death of the settlor. The trustee has the right to make distributions required or permitted by the terms of the trust prior to being served with process in a proceeding brought by the personal representative.In West Virginia, after the death of a grantor, and subject to the grantor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the grantor's death is subject to claims of, to the extent the grantor's probate estate is inadequate to satisfy them:
(A) The costs and expenses of administration of the grantor's estate;(B) Reasonable funeral expenses;(C) Debts and taxes with preference under federal law;(D) Unpaid child support which is due and owing at the time of the decedent's death;(E) Debts and taxes with preference under other laws of the State of West Virginia;(F) Reasonable and necessary medical and hospital expenses of the last illness of the decedent, including compensation for persons attending the decedent during his or her last illness; and(G) All other claims.
Article 6 deals with the growing use of a revocable trust, and under the UTC such revocable trusts are treated as the functional equivalent of a will. The UTC establishes a standard of capacity for the execution of a trust. In general, a person may commence a judicial proceeding to contest the validity of a trust that was revocable at the settlor's death within the earlier of two years after the settlor's death or six months after the trustee sent the person a copy of the trust instrument and a notice informing the person of the trust's existence, of the trustee's name and address, and of the time allowed for commencing a proceeding.
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*JAMES P. COX III, an attorney with Michie Hamlett in Virginia, practices in the areas of estate planning and administration, estate litigation, and real estate. He received a B.A. summa cum laude from Duke University in 1980 and a J.D. from the University of Virginia School of Law in 1983. He is a member of the American and Virginia Bar Associations, the Virginia State Bar, the Charlottesville Albemarle Bar Association, the Duke University Estate Planning Council, the Central Virginia Estate Planning Council, and Phi Beta Kappa. He is currently the Chairman and member of the Council and Legislative Committee of the Wills, Trusts and Estates Section of the Virginia Bar Association.
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