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Tennessee’s national reputation as a leading state to establish and administer a trust took another step forward with the passage of several new regulations on May 12. The new laws – when combined with the repeal of Tennessee’s tax on passive investment income (the Hall Income Tax) on January 1 – further solidifies the Volunteer State as a top jurisdiction for trustees to protect and grow trust assets for beneficiaries.
Over the past several years Tennessee legislators have sought to attract more trust business (and jobs) to the Volunteer State by fine-tuning trust laws that are favorable to business owners – and estate planning professionals around the country have taken notice. Tennessee currently ranks third in Oshins & Associates’ widely followed Annual Dynasty Trust State Rankings Chart and tied for sixth in its Annual Domestic Asset Protection Trust State Rankings Chart.
The revisions to Tennessee’s uniform trust code that Gov. Bill Lee signed into law and took effect on July 1 include a wide range of provisions. Some amendments make it easier to manage and administer trusts, while others are designed to protect trust assets from creditors (and potential lawsuits). Here are four areas in which the new legislation will improve Tennessee’s standing in the trust industry and that benefit grantors and beneficiaries:
- Trust registration
One of the most important changes to state trust law is that it is now easier for a trustee to register a pre-existing trust in the state of Tennessee, even if the trust was originally formed in another state. The new rule clears up some confusing and/or ambiguous language that prevented some out-of-state trusts from proving that Tennessee law should govern the trust. The change also was put in place to make Tennessee more appealing to international individuals and families who are seeking a more tax friendly jurisdiction.
A trust still must prove that substantial trust administration is being performed by a qualified Tennessee Trustee. Such duties include, for example, having the trustee’s principal place of business in Tennessee; preparing or organizing some of the income taxes in the state; holding some trust assets in the state; or maintaining some of the trust records in Tennessee.
- Asset protection
Another key change centers on asset protection trusts, the most common of which in our state is a Tennessee Investment Services Trust (TIST). The new regulations further protect TISTs by reducing from two years to 18 months the amount of time a creditor can file a claim on a trust’s assets. Tennessee is now tied with Ohio for having the shortest statute of limitations for creditor claims. It is important to note that federal bankruptcy laws, however, have a 10-year look-back period in connection with alleged fraudulent transfers to self-settled trusts.
Concurrently, lawmakers also broadened the definition of who may create a TIST (and take advantage of Tennessee’s strong asset protection laws). A “person” now includes a wide range of entities, ranging from corporations, limited liability companies and joint ventures to a business trust, estate or any other commercial enterprise.
Tennessee lawmakers also enhanced state trust law by providing more flexibility with regard to decision making on behalf of the trust. Trustees can now name multiple parties to be involved in managing the trust to take advantage of their expertise. It also allows an individual providing services to a trust to form a limited liability company, affording that person liability protection when working with the trust.
Finally, the new legislation creates new opportunities for individuals and families who wish to establish a multi-generational legacy for purpose trusts. Purpose trusts have no named beneficiary and include, for example, pet trusts or trusts specifically designed to buy equipment or pay for repairs for a business. Purpose trusts can now last 360 years instead of 90 years.
Tennessee’s recent amendments to the Trust Code, most of which become effective July 1, 2021, show its dedication to remaining one of the most favorable jurisdictions for trusts. If you are wondering what else makes Tennessee such an excellent state for trusts, we are here to help educate you and help ensure your estate plan is efficient and effective.
Lawmakers sometimes get a bad rap when enacting new laws. But by working closely with the estate planning, banking and wealth management professionals, Tennessee legislators have proven they remain committed to ensuring our state has competitive regulations that can help families and individuals protect and grow their wealth for future generations to benefit.
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