Rushed Prenup Invalidated by Court

How much time must pass between the execution of a prenuptial agreement and the wedding of the parties in order for the agreement to be enforceable?

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Revocable Trust as Post-Nup?

Can a revocable trust created by one spouse after marriage constitute an enforceable postnuptial agreement for divorce purposes? This question arose in a recent case decided by the Tennessee Court of Appeals. The facts are as follows: Husband and Wife were married in 2006. It was a second marriage for both parties. In 2009, Husband established a revocable trust, naming himself as trustee and Wife as successor trustee. The revocable trust named Husband as current beneficiary and Wife and children as remainder beneficiaries of anything left in the trust at Husband’s death. Husband also executed a will that directed his probate assets to the revocable trust at death. Husband funded the revocable trust with at least four properties: (1) a lakehouse […]

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TISTs: Who SHOULD be Trustee?

A previous post discusses who can legally be the trustee of Tennessee Investment Services Trust (TIST). A better question might be: who should be the trustee of a TIST? Choosing the wrong trustee could expose a TIST to creditors. One argument in favor of piercing a TIST is that the trustee is beholden to the grantor. That is, a creditor might argue there is a tacit understanding that the trustee will simply follow the grantor’s instructions without exercising independent judgment. This is simply a version of the alter ego argument discussed here. Essentially, the argument is that the trust is a sham and thus should be disregarded.  The best way to avoid this argument is to appoint a trustee that has written policies […]

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Forms of Asset Protection

Ownership by the Other Spouse–It is not uncommon for a spouse with high liability exposure to transfer assets to his or her spouse with a lower risk profile. Tenancy by the Entirety (TBE)–TBE refers to assets titled in the name of husband and wife. A creditor of one spouse may not reach TBE property unless and until the non-debtor spouse dies or the TBE is severed by the divorce of the parties. Retirement Assets–State law protects IRAs from the creditors. Federal law protects qualified plans such as 401(k)s. This protection applies to the account owners. Whether it extends to beneficiaries who inherit the accounts is an open question. According to the Supreme Court, the answer is no, at least in […]

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2018 HSA Limits Announced

The IRS has announced the maximum amount an individual can contribute to a Health Savings Account (HSA) in 2018. For individuals with self-only coverage, the HSA limit will be $3,450. For individuals with with family coverage, the limit will be $6,900. In order to qualify for an HSA, you must be enrolled in a “high deductible health plan.” For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage. Earlier posts about HSAs: Are HSAs Protected […]

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Grantor as Alter Ego of Trustee

Should the grantor of an irrevocable trust be treated as the alter ego of the trustee? The IRS and creditors would prefer the answer to be yes, but the Tennessee Trust Code generally says otherwise: Absent clear and convincing evidence, no settlor of an irrevocable trust may be deemed to be the alter ego of a trustee of such trust. What are some of the factors that would provide clear and convincing evidence that the grantor has too much control over the administration of the trust? NOT the following, whether taken alone or in combination: The grantor is serving as a trustee, a trust advisor, a trust protector or other fiduciary; The grantor has an unrestricted power to remove or replace; […]

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Savings Statute for Interested Trustees

Some easy to overlook statutes in the Tennessee Trust Code can save a poorly drafted trust with an interested trustee from inadvertent taxation and creditor exposure. An interested trustee is a trustee who is also a beneficiary of the trust. If the trust instrument gives an interested trustee the power to make distributions to himself, that power should be limited to an “ascertainable standard,” typically health, support, maintenance, and education. Otherwise, the trustee will possess a general power of appointment. Likewise, an interested trustee will be deemed to have a general power of appointment if he can make distributions for the purpose of discharging a legal obligation. This is a problem because assets subject to a general power of appointment are […]

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TISTS: An Overview

Normally, if you establish a Tennessee trust for you own benefit and fund it with your own assets, the trust assets are not shielded from creditors. Instead, creditors can reach the maximum amount that can be distributed to you or for your benefit. This is true unless the trust is a Tennessee Investment Services Trust, or TIST. When assets are transferred to a TIST, creditors generally have two years to commence an action against the trust. To be successful, creditors must prove the transfer was a fraudulent conveyance. In addition, creditors whose claims arise after the transfer must prove that the transfer was made with the actual intent to defraud those specific creditors.  If a creditor’s action is not commenced […]

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TISTs: Some Key Points

Irrevocability. A Tennessee Investment Services Trusts (TIST) is irrevocable, meaning that once it is executed it generally cannot be altered, amended, revoked, or terminated.  As a result, it is very important that the trust provisions reflect your wishes.  This is particularly true with respect to the rules that apply during your lifetime, as the provisions that apply upon death can be typically be altered by your will through the exercise of a testamentary limited power of appointment. Qualified Affidavit. When you first transfer assets to a TIST, you must execute a “Qualified Affidavit.”  By doing so, you are swearing that the transfer is not being made to defeat creditors, that it does not involve illegally obtained assets, and that it is not […]

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Who can be the Trustee of a TIST?

In order for a TIST to be effective for asset protection purposes, it must be administered by a “qualified trustee.” A qualified trustee is (a) a Tennessee resident or (b) a bank or trust company that is subject to supervision by the Tennessee Department of Financial Institutions, Federal Deposit Insurance Corporation (FDIC), Comptroller of the Currency, or the Office of Thrift Supervision.  Neither you nor spouse should serve as trustee. Ideally, the trustee would not be someone who is “related or subordinate” to you.  Instead the trustee should be someone you can trust to manage the trust assets wisely and to follow the terms of the TIST.  The latter criterion is especially important, since failure to properly administer the TIST […]

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Are HSAs Protected from Creditors?

Yes: Except as provided in subsection (c), any funds or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan which is qualified under §§ 401(a), 403(a), 403(b), 408 and 408A, or an Archer medical savings account qualified under § 220 or a health savings account qualified under § 223 of the Internal Revenue Code of 1986, as amended, are exempt from any and all claims of creditors of the participant or beneficiary, except the state of Tennessee. All records of the debtor concerning such plan and of the plan concerning the debtor’s participation in the plan, or interest in the plan, are exempt from the subpoena process. The […]

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Trustee Removal Power: Another TIST Trap for the Unwary

As previously noted, T.C.A. § 35-16-111 provides an exclusive list of powers that the grantor of a Tennessee Investment Services Trust (TIST) can retain without exposing trust assets to creditors. The grantor’s ability to remove and replace the trustee (or trust advisor) is one such permissible power. However, a broad power to remove and replace does not satisfy the statute. Instead, the grantor’s power to remove and replace must be limited to parties who are not “related or subordinate” to the grantor as defined in Section 672(c) of the Internal Revenue Code. This rules out any nonadverse party who is (1) the grantor’s spouse if living with the grantor; or (2) any one of the following: the grantor’s father, mother, […]

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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 […]

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