by Jonathan A. Nelson
I have written previously about estate planning considerations if you move to a new state. In that post, I mentioned that trusts can keep some (but not all) of the character of the old state’s law. What are some of the details of that?
Once a trust is in place, the relationship between the grantor, the trustee, and the beneficiaries is governed by fiduciary law. However, entering into the trust relationship is a matter of contract between the grantor and the trustee, and because of that, the parties can select the law governing the contract, so long as there is some relationship between the contract and that jurisdiction. For a trust, that will often be the state of residence of the grantor for practical reasons – it will coordinate after death with the law governing the rights of a surviving spouse and settlement of debts,, will provide more convenient access to courts if judicial assistance is needed, and may simply be where the drafting attorney is best able to predict the outcomes in order to best serve the grantor’s intentions.
Following a move, sometimes it is helpful to retain the old state’s law. Not only will it generally provide better continuity and predictability, there may be other documents (such as a premarital agreement entered in the old state) which are better aligned that way. If creditor protections were an important part of the plan, retaining the old state’s law may be essential.
However, there are situations where the Trustee changes the trust’s ‘situs’ (the home jurisdiction). For example, if an asset or even a beneficiary is in another state, that state may end up being a more helpful place to declare the situs of the trust because of coordination with that state’s law or administrative practices (for example, if the beneficiary receives public benefits in that state), giving more convenient access to courts, or for tax efficiency.
Regardless of the state chosen, other states’ law may apply to some aspects of the trust. Marital rights and obligations of a decedent or beneficiary will be governed by the law of their last residence, as may be the rights of a decedent’s creditors to invade a revocable trust. Real property rights and title questions will be defined by where the land is.
I have seen cases where the change was essential and cases where it was best left alone even under similar circumstances – for instance, when moving from California to Virginia, one family may be better served by changing to Virginia’s more flexible property rights, while another family might prefer to keep certain tax advantages from California.
Whether to change the trust’s situs after a move or after a death is a complex question that may require a conversation between estate planning attorneys in both states and taking into account the priorities and assets at issue.
Virginia attorney Jonathan A. Nelson practices in estate planning, probate, trust administration, business formation, and estate and trust litigation, and brings nearly 20 years of experience resolving conflicts, negotiating settlements, vigorously advocating in the courtroom, and navigating compliance matters. He uses a personal touch and extensive legal knowledge to ensure that the particular needs and interests of each client are reflected in the legal services they receive.
The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.