Tennessee Trust Bill Signed Into Law: Top Highlights You Should Consider
In recent years, Tennessee has become a well-known state for favorable trust laws, often ranking in the top 3 states to situs or locate a trust. To assist Tennessee lawmakers in making the most beneficial trust updates, the Tennessee Bankers Association (TBA) has formed a working committee of trust officers and lawyers from across the state who suggest comprehensive updates to trust laws when needed.
Most recently, the TBA introduced Senate Bill 896 / House Bill 1186 in February 2021, which included several key changes to Tennessee trust laws. This trust legislation has now been signed into law by Governor Bill Lee. Most items in the legislation will take effect on July 1, 2021, except for one section that will allow trusts to register with the Secretary of State’s office (that section will take effect on January 1, 2022). The following blog post explores the top highlights from the legislation that you should consider:
1.) Creditor Statute of Limitations
As part of SB896/HB1186, the creditor statute of limitations (SOL) has decreased from two years to 18 months. This means a future creditor must make a claim to any assets transferred into trust within 18 months of such transfer, or they lose the ability to attach to those assets. Existing creditors also have 18 months or six months after the fraud could have been reasonably discovered. It is important to note that the six-month allowance can permit the SOL to extend past the 18-month limitation if the transfer could have reasonably been discovered, such as the transfer showing up in a public record.
2.) Due Diligence Requirement
Another impact of SB896/HB1186 is the due diligence requirement (signing of affidavit). Tennessee requires that a settlor sign an affidavit in which the settlor agrees that they are not currently considering bankruptcy, there is no intent to defraud creditors, and they will not become insolvent upon the transfer of assets into the trust. Previously, a settlor must also have signed an affidavit upon each transfer of assets into the trust. With the new law, although the settlor will still have to sign an affidavit upon initially transferring assets to the trust, the subsequent affidavits will not be required.
3.) Trustee Accounting and SOL for Trustee Liability
The newly passed legislation makes changes to trustee accounting and the SOL for trustee liability. Previously, Tennessee trustees were required to give accounting to the beneficiary, and trustee liability was waived one year after any potential liability claims are disclosed, or the beneficiary has knowledge of a potential claim. The latest revisions include that the trustee can give accounting to a third party if the trust instrument specifies. It also allows the beneficiary to waive notice and appoint a designated recipient if they desire. The SOL will run one year from the delivery to the third party or upon waiver with acknowledgment of the beginning of the statute of limitations period.
4.) Non-judicial Settlement Agreements
The new law clarifies that trustees and qualified beneficiaries can agree via non-judicial settlement agreements (NJSAs) to a trust being administered as a directed trust. An NJSA is a contract between all interested parties to alter certain features of a trust. This situation often comes up when transferring a trust to Tennessee from another state. According to SB896/HB1186, NJSAs can be used to approve an investment decision, policy, plan, or program of a trustee, which includes establishing a directed trust by agreement with the qualified beneficiaries as allowed under TCA § 35-15-710 and § 35-15-1201. A directed trust allows for a directed trustee to instruct the corporate trustee on the execution of the trust. This allows the directed trustee (often a family member) greater involvement in trust decisions while also preserving the safety net of a corporate trustee. A directed trust frequently results in a lower fee for the corporate trustee services.
5.) Maximum Duration/Enforceability of Purpose Trusts
In previous Tennessee trust legislation, the maximum duration/enforceability of purpose trusts was 90 years. These types of trusts include pet trusts and trusts for the maintenance of specific real property, among others. The latest legislation now extends that period to 360 years.
Have Additional Questions?
While the passing of the latest Tennessee trust bill brings more opportunity for trusts to the state, it may also leave you with additional questions. If you would like to understand how these laws apply to your situation, our team is here to help. Please contact us for more information.
Rebecca McNabb, J.D., LL.M., serves as a Trust Advisor for Magnolia Trust Company. In this role, Rebecca brings her legal background and trust administration experience to support the areas of complex estate planning and trust administration issues.