Amendments to the Tennessee Investment Services Act and the Tennessee Uniform Trust Code
A “self-settled spending trust” is a trust created by an individual (the “settlor”), who then transfers assets to a third party trustee, these transferred assets being held by the trustee (who retains legal ownership of the assets) at the same time. benefit of the grantor and other natural persons (who retain the beneficial ownership of the assets). The weight of authority is that self-established spending trusts are indeed valid trusts; however, depending on the applicable law, they may or may not offer protection against the grantor’s creditors. Currently, 19 states statutorily recognize the validity of the self-established spending trust. Tennessee’s spending trust legislation, more commonly known as the Tennessee Investment Services Act, has been in effect since July 1, 2007.
On May 12, 2021, Governor Bill Lee enacted Bill 1186 (hereinafter referred to as the “Act”), which amended and strengthened the Tennessee Investment Services Act and the Tennessee Uniform Trust Code. Effective July 1, 2021, the law favorably amends Tennessee’s trust laws, which is expected to increase Tennessee’s ranking among the 19 states that currently have similar types of legislation.
First, the law generously extends Tennessee’s previous 90-year maximum trust period to allow 360-year dynasty trusts (c.).
The next question concerns the Tennessee law governing the immunity from claims of creditors of property belonging to spouses. The law currently provides that property held by the spouses as tenants by the entire which is subsequently transferred from the spouses to a trust loses this qualification of co-ownership. The Act revises this particular statute to provide that after a transfer of the spouses to a trust, the property will thereafter remain as property owned by the spouses as tenants in full. This revision of the Tennessee rental classification in its entirety is extremely beneficial for a debtor spouse, as a creditor of one of the spouses cannot attempt to seize property belonging to a rental by the entirety.
Next, current law requires a transferor of assets to a Tennessee asset protection trust to sign a “qualified affidavit,” which means that the transferor must sign an affidavit under oath before transferring assets to a trust. The qualified affidavit must state that: (a) the assignor has full right, title and authority to transfer the assets to the trust; (b) the transfer of assets to the trust will not render the transferor insolvent; (c) the assignor does not intend to defraud a creditor by transferring the assets to the trust; (d) the Assignor has no pending or threatened legal action against the Assignor, except for those legal actions identified by the Assignor in an attachment to the Affidavit; (e) the assignor is not involved in any administrative proceedings except those administrative proceedings identified in an attachment to the affidavit; (f) the assignor does not intend to seek relief under the Federal Bankruptcy Code; and (g) the assets transferred to the trust were not derived from illegal activity.
The Act removes the strict requirement that a qualified affidavit be signed by the assignor in respect of every transfer. In addition, the Act inserts a new provision according to which the execution by a assignor of a qualified affidavit “creates a rebuttable presumption that the assets disclosed in the affidavit have been transferred to the trust on the date of execution of the”. affidavit. The transferor has the burden of proving by a preponderance of evidence the date of transfer of any asset that is not shown on a qualified affidavit.
Another provision favorable to debtors inserted by the law provides that the limitation period for a claim by a creditor against a assignor must be made no later than “eighteen (18) months after the qualified provision or six (6) months after the person discovers or reasonably should have discovered the qualifying disposition. This 18 month period reduces the current creditors’ claims period by two years. When effective, Tennessee’s 18-month period binds Ohio as a state with the shortest statute of limitations with respect to potential future creditors of a assignor.
Finally, the law amends some of the Tennessee settling laws in the Tennessee Uniform Trust Code. In short, “settling” is the process of transferring assets from one irrevocable trust to a second irrevocable trust with more favorable terms and conditions. After the death of the settlor, the Act authorizes the trustees to accelerate the beneficial interest of a future beneficiary. This means that the trustee has the discretion to make a future beneficiary (i.e. a beneficiary who is not currently eligible to receive distributions at present) eligible to receive distributions of income or benefits. principal on a date prior to the date on which the beneficiary would otherwise be eligible to receive distributions from the trust.
Overall, the law improves Tennessee’s trust laws and should make it a more favorable jurisdiction for those concerned with asset preservation to consider creating a self-installed Tennessee spendthrift trust.