Recent Changes to Trust and Estate Laws in Tennessee

July 30th, 2019 | Michael R. Crowder, Esq.

In May, Governor Lee signed two new bills which made several changes to Tennessee law in the areas of wills, estates, and trusts. Some key changes are outlined below.

Directed Trusts

For years, Tennessee has allowed for the creation of “directed” trusts, meaning that the grantor of a Tennessee trust can appoint a person as a “trust protector”--also known as a “trust advisor”--with the power to “direct” the trustee. Powers commonly granted to trust protectors include the power to direct investment and distribution decisions, to review and approve a trustee’s accounting, and to remove and replace a trustee. Grantors establishing Tennessee trusts often utilize the office of trust protector by appointing a family member to oversee the actions of a corporate trustee.

Special Purpose Entity

As of Governor Lee’s signing, new legislation now allows a “special purpose entity”—either an LLC or corporation—to act as trust protector of a trust where a Tennessee corporation serves as trustee. This new law could allow a trust to avoid taxation by states that tax trusts based on the residency of the trust fiduciary. For example, if the grantor of a trust with a Tennessee corporate trustee wants to appoint an out-of-state family member as trust protector, they may avoid taxation in that family member’s state of residence by establishing an LLC as a special purpose entity in Tennessee. The out-of-state family member would be the sole member of the LLC, and the grantor would appoint the LLC as the trust protector instead of the family member.

Another benefit of this new law is that it provides liability protection to those persons interested in serving as trust protector. Since the special purpose entity is organized as either an LLC or a corporation, the members, owners, or officers of the entity will be granted the same general liability protection from the entity’s operations as is otherwise the case with LLCs and corporations.

New Tennessee Trust and Estate Laws

Other new laws that Governor Lee signed into effect include:

1. A law exempting from recording taxthose deeds that effectuate the distribution of real property to trust beneficiaries bythe trustee of a testamentarytrust or revocable living trust.
2. A law allowing the grantor of a trust to direct the disposition of tangible personal property by separate memorandum (a practice commonly employed, but never codified).
3. A law providing that the modification of an irrevocable trust by a court or by consent of the beneficiaries is not prohibited by a spendthrift clause or provision in the trust that prohibits amendment or revocation of the trust.

If you have any questions or concerns about how these recent changes may impact your estate plan, or about estate planning generally, please contact us at (865) 546-7311.

A Note: this article was originally published in our Summer 2019 Newsletter. Want more content like this? Don't forget to sign-up for our newsletter!