As more people elect to use revocable living trusts for estate planning purposes instead of traditional wills, the disposition of property will increasingly depend on the interpretation and determination of revocable living trust provisions. Virginia’s General Assembly (“General Assembly”), Virginia’s state legislature, recently acted, with House Bill 746, to address some of the principles governing revocable living trusts. House Bill 746, which has been signed into law, amends several statutory sections of the Virginia Code relating to trust and estate law (collectively, the “Amendments”). The Amendments serve to reduce some inconsistencies in the substance and interpretation of revocable living trusts and wills. This post summarizes the Amendments in general terms.
Automatic Revocation of Certain Trust Distributions/Powers in the Event of a Divorce
Virginia Code Section 64.2-412 provides that powers of appointment and gifts to spouses in wills were automatically revoked in the event of an entered divorce decree (unless the will expressly provided otherwise). The Amendments extend this automatic revocation principle to revocable living trusts. The Amendments also provide that if a divorce or spousal support petition is filed (as opposed to finalized) by a spouse, then all powers and powers of appointment, contained in the settlor’s revocable living trust, are revoked by operation of law. Note, however, that if there is no subsequent trust revocation or amendment, then the former trust provisions are revived upon the trust settlor’s (the maker of a trust) remarriage to the former spouse.
Ademption Principles are Extended to Revocable Living Trusts
Ademption principles apply when property, left to a certain beneficiary under a will, is no longer in the estate when the testator (the maker of a will) passes away. By amending Virginia Code Section 64.2-415, the Amendments adopt some of the ademption principles that govern wills to revocable living trusts. The ademption principles are quite complicated and are too voluminous to summarize fully in this post.
Principles Governing Gifts that Fail to Pass are also Extended to Revocable Living Trusts
The Amendments also extend several principles regarding gifts that fail to pass, to revocable living trusts. Virginia Code Section 64.2-416 provides that if a devise or bequest in a will fails (such as when the beneficiary predeceases the testator), then such property would instead pass as part of the residue of the estate. The Amendments extend Virginia Code Section 64.2-416’s principle to apply to revocable living trusts. Specifically, if a trust distribution fails to pass, it shall pass as part of the residue of the trust corpus. Moreover, the Amendments also provide that if a share of a trust distribution, which is intended to pass to two or more persons, fails for any reason, then such share shall pass to the other residuary beneficiaries in proportion to their interests in the residue.
Anti-Lapse Principles are Extended to Revocable Living Trusts
Anti-lapse is a doctrine in estate law that provides that a gift intended for a certain qualifying relative (grandparent or descendant of a grandparent) shall not fail if the qualifying beneficiary predeceases the testator. The gift does not lapse, but rather passes to the descendants of the qualifying beneficiary. By amending Virginia Code Section 64.2-418, the Amendments extend these anti-lapse principles to revocable living trusts. For example, if a trust distribution is intended for a certain qualifying relative, and such relative predeceases the trust settlor, then the distribution would not fail, but would rather pass according to the anti-lapse scheme of relatives. Notably, the anti-lapse principles are also too nuanced to explain fully in this post.
Scope and Effective Date of the Amendments
It is important to note that the Amendments apply to revocable living trusts, not any other type of trust. Moreover, the Amendments, as they relate to ademption, anti-lapse, and the principles governing gifts that fail to pass, apply to distributions or gifts made a result of the passing of the trust settlor.
Generally, the Amendments apply to events that occur on or after July 1, 2018. For example, the changes regarding gifts that fail to pass, ademption, and anti-lapse are effective to the extent the trust is revocable immediately before the settlor’s passing on or after July 1, 2018.
Summary
These Amendments deal with highly technical and nuanced principles of Virginia estate and trust law. Disputes relating to these principles typically necessitate the assistance of an experienced estate litigator.