Estate Planning Essentials: August 2018
Chambliss Estate Planning Essentials brings you legal developments and other trends of vital interest in the world of estate planning. This post is brought to you by Rebecca Miller and other members of the Estate Planning Practice Group of Chambliss Law Firm.
Protecting Assets Through a Tennessee Investment Services Trust
Over the last 20 years, Tennessee has become one of the most trust-friendly states in the nation. For example, the Tennessee Investment Services Act allows for the creation of an asset protection trust called a Tennessee Investment Services Trust (‘TIST’), which provides asset protection but still allows some control over the assets.
What is a Tennessee Investment Services Trust (‘TIST’)?
Generally, to create a trust, a person (called the grantor or settlor) gives property to a person (called a trustee) to hold for the benefit of the trust’s beneficiaries. Historically, all the states prohibited establishing a trust for your own benefit that was designed to protect assets from creditors (a self-settled spendthrift trust). However, several foreign countries allowed such trusts, and U.S. citizens were protecting assets using foreign trusts. Tennessee is currently one of about 16 states that allow a self-settled spendthrift trust, also commonly referred to as a domestic asset protection trust. Tennessee’s version is called a TIST. The trustee of a TIST decides how the money is spent on the beneficiary (who is also the grantor), and creditors of the beneficiary/grantor cannot reach the trust funds once all of the statutory requirements are met. A creditor CAN collect against money that has been distributed to the beneficiary from the trust.
What are some of the advantages of a TIST?
- Trust assets are exempt from claims of creditors (so long as the claim is made more than two years after the trust is established)1
- Assets of the trust will not be administered and distributed under probate after grantor’s death.
- The grantor can retain some rights over the trust property, including input in investment decisions, the authority to veto distributions, and the right to remove a trustee and appoint a successor
- The trustee may also provide investment advice
- The grantor has more freedom to invest non-trust assets in more speculative or high risk investments with knowledge that all assets are not exposed to the risk
What are the potential drawbacks?
- The cost associated with a third party trustee
- The trust must be irrevocable
- The trust is not a vehicle for reducing estate, gift, or generation skipping taxes
- Less speed and flexibility in changing investments
- The trustee of the TIST must maintain custody of most of the trust assets in the state of Tennessee
How do you create a TIST?
There are very specific statutory requirements for creating a TIST that must be followed in order to obtain the benefits of a self-settled spendthrift trust like a TIST. Most importantly, the grantor must sign a sworn statement prior to the creation of the TIST certifying that the grantor is qualified under the statute to create and fund a TIST.
1 The creditor protection may not extend to claims for child support, alimony or court-ordered property settlement obligations related to a divorce, depending on the laws of the beneficiary’s state of residence.
Please contact us if you are interested in creating a TIST or would like to learn more.