TISTs and Real Estate: A Trap for the Unwary

Tennessee Investment Services Trusts, or TISTs, are domestic asset protection trusts established under Tennessee law. They allow individuals in high risk professions–doctors, lawyers, real estate developers, entrepreneurs, etc.–to put assets beyond the reach of creditors while retaining the benefits of those assets. They are are frequently used to protect passive investment assets that the trust creator (“grantor”) does not need to tap into on a current basis, such as a non-qualified brokerage account. But what if the asset you want to protect is your home?

The TIST statute provides a list of 11 powers that a grantor can retain without the trust being deemed “revocable.” The list is exclusive.  If a trust document bestows powers on the grantor that are not on the list, the trust will not be creditor-protected.

Among the permitted powers is the grantor’s potential or actual use of real property. However, the grantor may only safely possess this power if the real property is held in a qualified personal residence trust, or QPRT. The list does not contain any other references to real estate. By implication, real property in a TIST that does not qualify as a QPRT will NOT be protected under the statute.

The rules governing QPRTs are complex, and they do not necessarily mesh well with the TIST rules. Nonetheless, if the grantor wants to use real estate in a TIST, the TIST must qualify as a QPRT.

Source: T.C.A. § 35-16-111

Posted by Joel D. Roettger, JD, LLM, EPLS

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