In what has become an annual event, the State of Tennessee has once again passed new legislation to update its trust laws to remain a top jurisdiction for the establishment and administration of trusts. The legislation, enacted as Public Chapter No. 101, was signed into law in March and became effective on July 1, 2025. Many thanks to the Tennessee Bankers Association (“TBA”) Trust Committee for its efforts in spearheading the legislation.
The 2025 trust law package made several updates to the Tennessee Trust Code. This article highlights a few of those updates, including clarifying a beneficiary’s status as a non-fiduciary in a directed trust, authorizing enhanced digital access to trust statements, providing for tax reimbursement to grantor trusts, and expanding the court’s ability to appoint a public trustee.
Clarification of a Beneficiary’s Non-Fiduciary Role
When Title 35, Part 12 of the Tennessee Code was initially enacted, it served to provide guidelines around the roles of the Trust Advisor and Trust Protector in the directed trust context. It contemplated these parties acting in a fiduciary capacity, though specifically allowed a beneficiary to serve in a non-fiduciary capacity.
Under the updated language in TCA § 35-15-1202, it is now clear that any Trust Advisor or Trust Protector can serve as a non-fiduciary, but only if they are specifically appointed in such capacity. And for any party serving in a non-fiduciary capacity, that person is only subject to liability if acting in bad faith or with reckless indifference.
Enhanced Digital Access to Trust Statements
Historically, many trustees have relied on printed statements that are physically mailed to beneficiaries to fulfill their reporting obligations, regardless of new digital capabilities. This was often done as a risk mitigation procedure, designed to ensure there was a record of mailing to the beneficiaries if needed. Under the new trust law updates, beneficiaries can now consent to receive statements and other materials electronically, so long as they remain accessible online for at least 60 days.
This change allows trustees and beneficiaries to embrace secure electronic delivery, resulting in faster communication, less paperwork, and greater transparency. It marks a welcome step toward more efficient and client-friendly trust administration.
Grantor Trust Tax Reimbursement
The legislation adds a new section to Title 35, Chapter 15, Part 8 of the Trust Code to provide for income tax reimbursement to the grantor of a grantor trust, establishing a statutory default rule. This rule is especially beneficial when a tax reimbursement provision was not added to the trust in the drafting process, considering recent IRS guidance warning of adverse tax consequences for later adding it through decanting or modification.
The new grantor tax reimbursement rule is only applicable so long as the trust document does not specifically prohibit reimbursement and must be exercised by a disinterested trustee (in its sole discretion, or under direction of a trust protector or trust advisor). In such cases, the disinterested trustee may reimburse the grantor for any amount of their income tax liability that is attributable to the trust’s income, capital gains, deductions and credits in the calculation of the grantor’s taxable income. The trustee may pay the reimbursement to the grantor directly or otherwise permitted to pay to the appropriate taxing authority.
Public Trustee Appointments
Under prior law, the court could appoint a public trustee in certain situations where the trust value did not exceed $100,000, including (1) when no substitute trustee was designated in the trust; (2) the trust did not provide a process to appoint a successor and no beneficiary petitions the court to appoint a successor within three months after vacancy; or (3) a court determines that a small trust should not be terminated but a successor should be appointed.
The 2025 trust legislation has removed the market value cap from T.C.A. § 30-1-404, so that a public trustee can be appointed on any size trust, allowing wider use of the public trustee options when it is deemed the best fit for the situation. The legislation also allows the parties to waive the three-month waiting period, allowing for a more efficient appointment process.
Conclusion
As with prior TBA trust legislation, these changes reflect Tennessee’s recognition of the importance of modernized trust laws, including statutory flexibility in trust administration. Pendleton Square Trust Company, Inc. welcomes the opportunity to work with families and their trusted advisors in navigating Tennessee’s updated trust laws.
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