Public Chapter 695, which Tennessee Governor Bill Lee signed into law in April, recently became effective on July 1, 2024. This law represents a continuation of efforts by the Tennessee Bankers Association (“TBA”) Trust Committee to maintain Tennessee’s status as a top jurisdiction for creating and administering trusts. Such legislative updates help attract interest in Tennessee from wealth planners across the nation.
The new legislation makes several updates to the Tennessee Trust Code. These include a new streamlined process for appointing trust advisors and creating a directed trust structure, clarifying the applicable rule against perpetuities for trusts established in other states, enhancements to the virtual representation statutes, and clarifying the effect on control of a private trust company when the trustee changes. The legislation also creates a new family entity structure within the Tennessee Revised Uniform Partnership Act.
In 2023, the Tennessee Trust Code was updated to allow a person that has the authority to appoint a successor trustee (“trustee appointer”) to effectively establish a directed trust by appointing additional trustees and allocating separate and distinct fiduciary responsibilities among them. In such a case, a corporate trustee might be given the administrative and possibly the distribution responsibilities of the trust, while an individual co-trustee might be given responsibility for the trust’s investments. Now, the statute, at Tenn. Code Ann. § 35-15-716, has been expanded further to give the trustee appointer the authority to appoint trust advisors and trust protectors and allocate various powers, “including the power to direct or prevent certain actions of the trustees.”
The trust legislation also helps clarify the applicable perpetuities period for trusts created in other jurisdictions that are transferred to Tennessee for administration. In such cases, the foreign jurisdiction may have allowed a shorter or longer period than Tennessee’s 360-year limit for trusts. Now, when a trust is moved to Tennessee, the following applies:
- If trust instrument doesn’t contain a state jurisdiction provision, then the term is the least of (i) 360 years from the date of creation of the trust, (ii) the period stated in the trust instrument, or (iii) the period governing under the law of the foreign jurisdiction; or
- If the trust does contain a state jurisdiction provision, then the term is (i) the lesser of the period stated in the trust, or (ii) the period governing under the law provided in the state jurisdiction provision
As indicated above, other changes to the Tennessee Trust Code include updates to the virtual representation statute at Tenn. Code Ann. § 35-15-303, and to private trust company (“PTC”) regulations. Regarding virtual representation, the legislation adds clarity for determining the priority of persons desiring to bind and represent minor or unborn descendants when there is disagreement, such as in the case of divorced parents. The legislation also expands the list of persons who may bind and represent an incapacitated adult, so long as a disinterested trustee is serving. Regarding PTCs, the legislation clarifies that a change in trusteeship, including the addition of a co-trustee, does not constitute a change in control under banking regulations, and therefore doesn’t impact the PTC’s exemption from other trust and banking regulations.
Lastly, the TBA’s trust legislation creates a “family partnership,” as a new form of general partnership under the Tennessee Revised Uniform Partnership Act. With the onset of the Corporate Transparency Act and for other reasons, planners have seen increased interest in general partnerships. The “family partnership” must be subject to a written partnership agreement entered into, or amended with consent of all partners, on or after July 1, 2024, and in which members of the same family hold, in the aggregate, at least fifty percent (50%) of the interests in the partnership’s profits or capital. The idea is that this structure will not only avoid certain requirements associated with registered business entities (e.g., limited liability companies), but still qualify for valuation discounts used in estate planning.
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.
