Tennessee trusts now enjoy many of the preferred features formerly available only to Delaware and South Dakota trusts. Beginning in 2012, Tennessee’s trust code has been modified significantly in a manner that keeps Tennessee on par with the most trust-friendly jurisdictions in the country.
State Income Tax advantage
Non-resident beneficiaries of Tennessee trusts are not subject to tax on dividends and interest. Tennessee residents are currently subject to tax on dividends and interest, although current law calls for this tax to be phased out over time.
Non-Judicial Settlement Agreements
Trustees and beneficiaries may enter into binding agreements with respect to any matter involving the trust without judicial intervention, so long as the agreement does not violate a material purpose of the trust.
A trustee with discretion to distribute trust principal to a beneficiary can exercise the power to move the trust principal to a different trust that benefits the same beneficiary. The newly created trust may have an encroachment standard that differs from the prior trust and may grant the beneficiary a power of appointment that was not available in the prior trust.
Equitable Adjustments and Unitrust Conversions
A trustee of a Tennessee trust with traditional net income distribution provisions can make adjustments and conversions to allow a current income beneficiary to increase the beneficiary’s returns (to a rate between 3% – 5% of the total market value of the trust). Converting a trust to a unitrust with a fixed return provides greater investment flexibility and aligns the interests of the current and remainder beneficiaries.
Asset Protection Trusts
A Tennessee Investment Services Trust allows the creation of a trust designed to protect client assets from creditors.
As directed trustee, Equitable Trust serves in all administrative fiduciary capacities other than management of trust assets. Investment management is the responsibility of a person or firm designated as “investment manager” or “trust advisor.” This arrangement delineates the duties of trust administration and investment management and can be drafted into the terms of a trust upon formation. For some older trusts, similar results can be achieved by trust modification agreement, non-judicial agreement, or decanting the old trust into a new trust.