Unpacking the Benefits of Tennessee’s 2024 Trust Code Revisions
Tennessee has long been recognized as a leader in trust law, offering a progressive and flexible framework for trust administration that benefits grantors, trustees, and beneficiaries alike. The state has once again demonstrated its commitment to nurturing one of the most beneficial trust jurisdictions in the nation with another series of updates to the Tennessee Trust Code, which go into effect July 1, 2024. These changes are intended to enhance the administration of trusts, improve beneficiary representation, and provide greater flexibility for managing and investing wealth.
What Makes Tennessee Trust Law Remarkable?
Tennessee’s position as a premier destination for trust situs is due in part to the proactive efforts of the Tennessee Bankers Association Trust Legislative Committee. This dedicated group, composed of top legal professionals and trust practitioners from across the state, plays a pivotal role in ensuring that Tennessee’s trust laws remain at the forefront of innovation and efficacy.
Each year, the committee convenes to review existing statutes and propose updates that reflect the evolving needs of trust administration. Their collective experience and forward-thinking approach have been instrumental in keeping Tennessee’s trust code modern and competitive. Runcie Clements, Chief Legal Officer and General Counsel; Leslie Malkiewicz, Vice President & Director, Legal, Assistant General Counsel; and Stephen Crofford, Vice President and Senior Fiduciary Counsel at Cumberland Trust are active members of this committee. The recently enacted SB 2256/HB 2713 is the latest outcome of the committee’s collaborative efforts. This legislation introduces several key revisions to past amendments that address the immediate needs of trust administrators and beneficiaries and anticipate future challenges and opportunities.
Updated Provisions for Representation of Beneficiaries
In the latest revisions to the Tennessee Trust Code, two significant changes have been made regarding the representation of beneficiaries. These changes are designed to enhance the flexibility and efficiency of trust administration, particularly when trustees meeting certain criteria are serving, such as a corporate trustee.
Representation by Holders of a Limited Power of Appointment
This update allows individuals holding a limited power of appointment to represent and bind qualified beneficiaries, regardless of any material conflict of interest, provided there is a trustee overseeing the trust that meets the qualifications stipulated in the statute. Previously, only holders of general powers of appointment
could do this without concern for conflicts of interest.
Why It Matters:
- Streamlined Decision-Making: This change can simplify the administrative process by allowing another to represent a beneficiary, which could be especially important when a beneficiary is unavailable or unable to participate in a decision.
- Conflict Mitigation: The involvement of an independent and disinterested trustee ensures impartiality, protecting the interests of all parties.
- Enhanced Flexibility: Trustees and qualified beneficiaries now have more options for managing and administering trusts efficiently.
Practical Example:
Consider a trust agreement where the current beneficiary has a limited power of appointment over the trust assets. Under the new law, if a trustee meeting certain qualifications is administering the trust, the current beneficiary with the limited power of appointment could represent the remainder beneficiaries in a non-judicial settlement agreement to agree to the resignation of a trustee and the appointment of a successor trustee.
Representation when a Beneficiary is an Incapacitated Adult
As long as a trustee that meets certain criteria is serving, like Cumberland Trust, then a parent, grandparent, sibling, or spouse of an incapacitated adult beneficiary who has assumed responsibility for the adult beneficiary may represent and bind the incapacitated adult beneficiary. This is if a conservator of the property or of the person has not been appointed, and an agent does not have the authority to act with respect to the matter in question. The trustee has the discretion to determine who has assumed responsibility for the incapacitated adult beneficiary.
Why It Matters:
- Clear Representation Path: Creates the possibility for a family member caring for the incapacitated adult beneficiary to participate in trust decisions that impact the beneficiary.
- Impartial Oversight: The inclusion of an independent and disinterested trustee helps ensure that decisions are made in the best interest of all parties, avoiding potential biases.
- Flexibility for Families: Allows family members who have taken on the responsibility of care to represent and bind the interests of incapacitated adults without needing a court-appointed conservatorship.
Practical Example: If a special needs trust is in place for an incapacitated adult beneficiary, a parent, sibling, grandparent, or spouse who has assumed responsibility for their care can represent them without needing to go through the court to get a conservatorship which can be time-consuming and expensive, provided a trustee like Cumberland Trust is administering the trust.
New Provisions for Appointing Directed Trustees and Trust Advisors
This latest legislative update also provides broader powers to those with the authority to appoint and remove trustees. Previously, the law allowed an individual with the power to remove and appoint trustees the ability to allocate responsibilities between co-trustees. With this update, the individual with the power to remove and appoint trustees can appoint additional trustees, trust protectors, and trust advisors. This authority allows them to allocate powers such as the power to direct or prevent certain actions of the trustees and reallocate those powers to one (1) or more of the trustees, trust protectors, and trust advisors serving from time to time. Essentially, this creates another way a directed trust can be established. The key aspects of this update include:
- Appointment of Multiple Successor Trustees: Allows the appointment of multiple successor trustees, trust protectors, and trust advisors, offering greater flexibility in trust administration.
- Allocation of Powers: Enables the allocation of specific powers to one or more trustees, trust protectors, or trust advisors. This includes the power to direct or prevent certain actions, enhancing the ability to customize trust management.
- Consistent Provision Applicability: All standard provisions applicable to trustees also apply to trust protectors and advisors, ensuring consistency in governance.
Why It Matters:
- Increased Flexibility: The ability to appoint multiple successor trustees and trust advisors allows for more tailored and dynamic trust management. This flexibility is crucial for adapting to changing circumstances and ensuring that the trust can meet its objectives effectively and efficiently.
- Specialized Expertise: By allowing the appointment of trust protectors and advisors, this update facilitates the involvement of specialized professionals in various aspects of trust asset administration and management. This ensures that the trust is managed by individuals with the appropriate expertise, whether in investment management, oversight, or other areas.
- Conflict Reduction: The ability to allocate specific powers to different trustees, protectors, or advisors helps in clearly defining roles and responsibilities, reducing potential conflicts and overlaps in duties.
Practical Example:
A high-net-worth individual establishes a trust to manage their assets and ensure their distribution according to specific wishes. The trust includes various types of assets, including real estate, stocks, and a family business. In order for the grantor to continue working with their preferred advisors, the appointment of trustees and allocation of powers are structured as follows:
- The grantor appoints Cumberland Trust as the primary trustee to handle administrative duties.
- A specialized investment advisor is appointed to manage the investment portfolio. The investment advisor is given exclusive authority over investment decisions, relieving Cumberland Trust of any investment management duties.
- A family member is appointed as a trust protector to oversee the family business operations and ensure they align with the grantor’s wishes. The family member trust protector has the authority to make decisions regarding the family business, ensuring it operates smoothly without interference from the administrative trustee.
Update to Foreign Trusts Transferring to Tennessee
Another significant update to Tennessee’s trust code provides greater flexibility for foreign trusts transferring to Tennessee. In Tennessee, all beneficial interests must vest or terminate within a specific timeframe. As to any Tennessee trust created after June 30, 2007, or that became irrevocable after June 30, 2007, the terms of the trust shall require that all beneficial interests in the trust vest or terminate or that a power of appointment is exercised within three hundred sixty (360) years.
As it pertains to foreign trusts transferring to Tennessee, if a trustee of an irrevocable trust transfers to this state the principal place of administration of a trust validly created in a foreign jurisdiction, as defined in § 35-15-103, then all beneficial interests in the trust must vest or terminate and any power of appointment must be exercised within:
If the trust instrument does not specify a jurisdiction, the period is the least of:
- 360 years from the date of the trust’s creation;
- The period stated in the trust instrument; or
- The period governing under the law of the foreign jurisdiction at the time the trust became irrevocable.
If the trust instrument specifies a jurisdiction, the period is the lesser of:
- The period stated in the trust instrument; or
- The period under the governing law of the specified state jurisdiction.
Why It Matters:
- Enhanced Flexibility: This update allows the ability to maintain original rules pertaining to vesting, as applicable, from the foreign jurisdiction when the trust transfers to Tennessee.
- Focus on Trust Duration and Administration: When applicable, Foreign Trusts may get to experience a longer timeframe for the trust to benefit future generations while enjoying the many administrative benefits of Tennessee law.
- Simplified Compliance: By defining clear rules for the vesting and termination periods based on jurisdiction provisions, the legislation simplifies the compliance process for trustees managing foreign trusts.
Practical Example:
An irrevocable trust validly created in a foreign jurisdiction has its principal place of administration transferred to Tennessee. The trust document states that State X law shall govern the trust. The trust document also states that the trust shall vest within the longest period allowed under State X law. State X’s statutes provide a trust must vest within 1,000 years of its creation.
- Modernized Administration: The Foreign Trust would get the benefit of being administered pursuant to Tennessee’s progressive and flexible administrative laws.
- Extended Duration: The trust could continue benefiting future generations for up to 1,000 years in accordance with State X’s statutes, providing long-term security and stability.
Reduced Administrative Uncertainty: The clear rules for the vesting and termination period provide clarity.
Leveraging Tennessee’s Trust Laws to Meet Client Goals
Estate planning attorneys and financial advisors have a unique opportunity to leverage Tennessee’s robust trust laws to benefit their clients. At Cumberland Trust, our professional trustees have in-depth knowledge of the state’s legal landscape. By working together, we can create tailored strategies for each client that optimize the benefits of Tennessee’s trust environment.
- Expertise in Tennessee Trust Law: Our legal team plays a pivotal role in educating administrators about Tennessee’s innovative trust code. Members of Cumberland Trust even serve on a committee designed to shape and update Tennessee’s trust statutes, ensuring we are often at the forefront of legislative changes.
- Tailored Solutions: We provide personalized, expert trust and estate administration, helping your clients efficiently achieve their wealth transfer goals.
- Enhanced Client Outcomes: Deliver superior results for your clients by integrating diverse perspectives and specialized knowledge into their circle of trusted advisors.
If you are interested in learning more about the advantages of Tennessee trusts, contact Cumberland Trust. Our team is prepared to partner with you and your clients to achieve a secure financial legacy.