Newly Enacted Legislation Maintains Tennessee’s Advantage in Trust Administration

Jun 16, 2022 | Understanding Trust Administration

The Governor of Tennessee recently signed into law SB 2166/HB 2353—a bill containing several revisions to Tennessee’s Trust Code.

As trust assets under management in Tennessee have increased to several hundred billion dollars, the Volunteer state continues to distinguish itself as a desirable state for trust administration, and this recently enacted legislation seeks to maintain this advantage.

The Tennessee Bankers Association Trust Legislative Committee meets annually to review Tennessee’s trust laws and determine what updates are needed for Tennessee to remain a leading trust jurisdiction and to enable trust administrators to better serve their clients. Runcie Clements, Chief Legal Officer & General Counsel and Leslie Malkiewicz, Vice President & Director, Legal, Senior Fiduciary Counsel at Cumberland Trust are active members of this collaborative committee.

“I and other members of our legal team have been fortunate to be a part of the Legislative Committee,” said Clements. “The Trust Legislative Committee is made up of some of the top legal minds and trust company professionals from across the state of Tennessee. The committee’s collective knowledge of the Tennessee Trust Code is tremendous as is its understanding of how our day-to-day practices are shaped by these laws,” said Clements.

Clements added, “as Cumberland Trust administers trusts for our clients, we maintain a consistent focus on the governing law. As we encounter unique challenges in trust administration each year, we take note of how Tennessee’s trust code may be made more internally consistent or better tailored to address various responsibilities of trust administration. We also note positive aspects of other states’ trust laws that can be incorporated into Tennessee’s trust laws to keep Tennessee at the forefront of the best state jurisdictions.”

Some of this new legislation includes technical corrections to wording and clarifications to amendments approved in previous years, while other revisions are more significant. However, collectively, they showcase a primary goal to support practical statutory framework for trust administration.

The bill made other notable improvements to Tennessee’s decanting statute. Decanting is a process often used in lieu of judicially modifying a trust. It allows a trustee that has discretion to encroach trust assets to a beneficiary to use that discretion to encroach trust assets to a new trust with more desirable terms. There are certain rules that a trustee must follow in exercising this discretion, but this new legislation made specific changes to the decanting rules in Tennessee. The previous law required the original trust and the second trust to be separate documents. The recent revision eliminates this requirement, and now permits decanting of a trust by restatement of the original trust. A significant benefit to trust decanting through modification or restatement is that it does not require the time-consuming retitling of property.

Another significant improvement impacts the judicial process for approving a final accounting provided by a trustee who is resigning, being removed, or is no longer serving due to the termination of the trust. Often when there is a change in trusteeship, either due to resignation or removal, the former trustee wishes to achieve a complete termination and resolution of all fiduciary liability. Tenn. Code Ann. § 35-15-205, which was added to the Tennessee Trust Code in 2019, authorizes the trustee to prepare and file a final accounting with a court and to seek approval of the accounting and a complete release of liability. The recent changes to this statute were made to acknowledge that parties other than trustees and trust beneficiaries might have an interest in the judicial proceeds. As such, the scope of parties who may take action or to whom an obligation is owed pursuant to Tenn. Code Ann. § 35-15-205 has been expanded to acknowledge that Trust Protectors and Trust Advisors are frequently included in trust agreements and granted various rights.

Extensive revisions were also made to Tenn. Code Ann. § 35-15-817, which governs how a trustee distributes trust assets and obtains releases upon termination of the trust or upon the trustee’s removal or resignation. The new law now provides that a trustee may be discharged from fiduciary liability through a written notice sent to all interested parties. The notice has certain requirements, including information on gains and losses on trust assets, fees and expenses paid, and a proposal for distribution, etc. Any party receiving this notice may submit a written objection within 45 days. If no written objection is made in a timely manner, the parties automatically waive the right to object, and the trustee is relieved from fiduciary liability.

These latest revisions to the Tennessee Trust Code include several additional improvements to Tenn. Code Ann. 35-15-1301, which governs the Tennessee special purpose entity (SPE). A special purpose entity is a type of trust used for higher net worth families that creates an umbrella over individuals serving as a trust protector or advisor, investment committee and/or distribution committee, with a corporate trustee located in Tennessee. The new legislation now mandates that the SPE must be organized in the State of Tennessee. The bill also changes the SPE’s filing requirements with the Tennessee Department of Financial Institutions (TDFI). Previously, an SPE was required to provide notice to the TDFI after beginning operations, it must now provide notice within 60 days after filing organizational documents with the state. The bill also eliminates the TDFI’s annual filing requirement and its annual fee.

Additionally, the bill updates the law regulating Voting Trusts in Tenn. Code Ann. § 48-17-301 by extending the maximum duration of a voting trust from seven years to any period of time determined by the agreement that creates the voting trust. The legislation also includes revisions to the amendments from 2021 that clarify the treatment of Tennessee Investment Services Trusts, which distinguishes the Tennessee Trust Code from other states.

“These relevant and timely updates to Tennessee’s Trust Code will not only allow for more flexibility in administering trusts, but also create more opportunities for Cumberland Trust to work together with our clients and their advisors to accomplish their goals,” said Malkiewicz.