Summer 1999 Newsletter
VIRGINIA'S NONRESIDENT FIDUCIARIES STATUTE DOES IT MAKE SENSE?
By J. GARRETT HORSLEY
One of the more frustrating topics attorneys discuss with clients involves a client appointing a nonresident as executor of his wilL Although the 1996 General Assembly revised Virginia Code § 2659, which, among other things, allows for the appointment of a nonresident as a fiduciary of a Virginia decedent's estate or testamentary trust, Virginia law still places a significant barrier to a nonresident serving as a fiduciary: the nonresident either must (i) post bond with surety or (ii) have a Virginia resident qualify as co-executor or co-trustee.
Upon learning of this burden, the client typically chooses not to charge his estate with the extra cost of a surety bond and either nominates a Virginia resident in his will to serve as co-fiduciary with the nonresident or provides in the will that the nonresident fiduciary may make such an appointment. In either case the testator's desire to have a nonresident fiduciary serve alone, without additional cost, is thwarted. If the testator wants surety on the bond of his nonresident fiduciary, he could simply not waive the requirement of surety in his will.
Although perhaps not as eye-catching as the right to life, liberty, and the pursuit of happiness, one judge described the ability to choose one's executors as follows:
"The right [is] a fundamental property right of a competent adult having testamentary capacity. . .. .. It is difficult to distinguish the right of a party to do business with whom they choose in their lifetime from their right to designate the same parties to handle their affairs after death."1
The Supreme Court of Virginia has voiced a similar opinion:
"The selection of an executor is an intensely personal matter. No business transaction which men must face is more so, and not by remotest indirection should the State trench upon this privilege except for cogent reasons."2
Policy Reasons Favoring Virginia Fiduciaries
What public policy is served by Virginia's restrictive laws concerning nonresident fiduciaries? The most prevalent answer is that the laws protect Virginia banks and trust companies against foreign competition. What with the recent rash of bank mergers, Virginia's laws will protect banks with home offices not in Virginia but in North Carolina and Georgia. This public policy should not be considered a strong one:
"[T]rusts are not created for the benefit of the trustees. The interest of a testator in disposing of his estate, and the interests of the beneficiaries, are far more important than those of the trust companies of the state in which the testator happens to be domiciled when he dies."3
In its most recent session, the General Assembly recognized that the landscape of corporate trustees in Virginia had changed and enacted the Multistate Trust Institutions Act (the "Act").4 The Act allows non-Virginia institutions, including national banks with a home state other than Virginia, to transact trust business in Virginia. The non-Virginia institution (i) must be registered to do business in Virginia, and (ii) must file with the State Corporation Commission the application or notice it files with its home-state regulator. The act also contains reciprocity language which provides that the non-Virginia institution may establish or acquire a trust office in Virginia only if its home state permits Virginia institutions to do likewise in that state. The reciprocity requirement poses a significant barrier to a non-Virginia institution that wants to operate a trust business in Virginia.
In addition to the interests of Virginia corporate fiduciaries, what about the interests of Virginia beneficiaries and creditors? Won't those parties be better served if a Virginia resident serves as fiduciary? The unstated proposition underlying these questions is that a Virginia court in Accomac County can supervise an estate's or trust's administration in Wise County better than can a foreign court, a proposition with which I doubt many people, much less many non-Virginia courts, would agree. Besides, because of full faith and credit, the prevalence of long-arm statutes and the ability to serve process on defendants who live far outside Virginia's borders, a creditor's rights are not weakened if a non-resident trustee serves.
To assuage the fears of their citizens, some states have adopted statutes such as the following:
"By accepting the trusteeship of a trust of which the principal place of administration is in this state, or by moving the principal place of administration of a trust to this state, the trustee submits personally to the jurisdiction of the courts of this state."5
In those states which have adopted the Uniform Probate Code (U.P.C.) provision, a trustee, irrespective of his residence, may be subject to in personam jurisdiction in the forum in which the trust property is located.6 Virginia's law currently requires a nonresident to appoint (i) the clerk for the city or county where he qualified or (ii) a Virginia resident as his agent to receive service of process,7 and thus clearly protects the interests of creditors and beneficiaries.
From a practical standpoint, favoring a Virginia resident who lives six hours away from the courthouse over a nonresident who lives only ten minutes away seems ludicrous. If a long-time family advisor lives just over the state line in Bristol, Tennessee, for example, should that fact by itself disqualify him from serving the client's family as a sole fiduciary?
The Revocable Living Trust Solution
Interestingly, a Virginia testator can solve the problem caused by the out-of-state residency of his individual fiduciary by having his residuary estate pour over to a trust he established during his lifetime. New Virginia Code § 64.1-73.1, which replaces § 64.1-73, specifically permits a nonresident individual to serve as trustee of such a trust, with the individual's residency determined when the distribution is made to the trust.8 Before he can receive the estate's assets, however, the nonresident individual trustee must file a consent form that service of process in any action against him may be made by service upon a Virginia resident. No bond with surety or further requirement will be necessary.
A foreign corporate trustee must be "authorized to do a trust business in this Commonwealth" to be .a trustee of such a trust.9 Other states, most recently Missouri, have amended their laws to recognize that banks, trust companies, or national banking associations in good standing, who have taken over local banks or trust companies, are authorized to act as fiduciaries in Missouri.10 The foreign corporate fiduciary may act in Missouri "without the necessity of complying with any [Missouri] law relating to the licensing of foreign banking corporations... or relating to the qualifications of foreign corporations to do business in [Missouri]."11
Call for Reform
Much like the NCAA committee that is currently investigating whether its own rules prohibiting college athletes from earning money "do in fact make sense," the General Assembly should revisit Virginia Code § 26-59 to see if it still makes sense. Having just passed Va. Code § 64.1-73.1 that allows a nonresident trustee of an inter vivos trust to receive a decedent's residuary estate from the executor, the General Assembly should take the small step of removing the surety cost barrier for a nonresident executor or testamentary trustee. The General Assembly also should consider refining the Multistate Trust Institutions Act to permit foreign banks and trust companies to serve as fiduciaries in Virginia without the reciprocity requirement, which merely hinders competition. These two changes would bring the administration of estates and testamentary trusts more closely in line with that of inter vivos trusts, would update Virginia laws that are outdated, and, most importantly, would give testators free choice in the selection of their fiduciaries.
J. Garrett Horsley is a partner in the Richmond law firm of Horsley & Horsley, where he practices in the areas of estate and tax planning, wills and trusts, charitable gifts, and fiduciary administration. Mr. Horsley received a B.A. degree from the University of Virginia in 1986 and a J.D. degree from the Washington and Lee School of Law in 1990.
1 Judge B. Gelfand, Estate of Harrison, 81 Misc.2d 807, 808, 366 N.Y.S.2d 755, 756, (1974).
2 Hofheimer v. Seaboard Citizens' National Bank of Norfolk, 154 Va. 392, 399, 153 S.E. 656, 658 (1930).
3VA W. Fratcher, Scott on Trusts, § 558 (4th ed. 1989).
4 House Bill No. 2251 (1999 Acts, ch. 835); Va. Code § 6.1-32.31 et seq. Effective date July 1, 1999.
5 See e.g., Ariz. Rev. Stat. Ann. § 14-7202(A) (1995), Colo. Rev. Stat. § 15-12-602 (1998).
6 See Alaska Stat. § 13.36.015 (1996); see also UNIF. PROB. CODE § 7-103 et seq., 8 V.L.A. 488
7 Va. Code Ann. § 26-59 (1997 Repl. Vol.).
8 House Bill No. 1996 (1999 Acts of Assembly, ch. 252); Va. Code Ann. § 64.1-73.1. Effective for wills of testators who die after June 30, 1999.
10 See Mo. Ann. Stat. § 362.600.5(2) (Vernon 1999 Supplement).
11 Id. at § 362.600.1(2).