Handwritten Modifications to Revocable Trust Deemed Invalid

In a recent case, the Tennessee Court of Appeals found that a settlor failed in her do-it-yourself approach to estate planning.

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Support Trusts

As the previous post notes, a special rule applies to a support trust in which the settlor’s spouse is a beneficiary. In that case, the trustee shall consider the spouse’s other resources (i.e., assets outside of trust) before making a distribution. But what is a “support trust” and why does the classification matter?

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Trustee’s Consideration of Other Resources

Consider the following scenario. A trust instrument provides that the trustee is authorized, but not required, to distribute income and principal for a beneficiary’s health, support, maintenance, and education. The beneficiary, who has significant assets of her own, requests a distribution to pay for elective surgery. The trust agreement, as is commonly the case, says nothing about a beneficiary’s other resources (i.e., assets outside of the trust). In deciding whether to approve the trust distribution, must the trustee nonetheless consider whether the beneficiary has the means to pay for the surgery on her own? 

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Children Born after the Will is Executed

A good Last Will and Testament will address the issue of children born after the document is executed. Nonetheless, the Tennessee Code has the situation covered: A child born after the making of a will, either before or after the death of the testator, inclusive of a mother-testator, not provided for nor disinherited, but only pretermitted, in the will, and not provided for by settlement made by the testator in the testator’s lifetime, shall succeed to the same portion of the testator’s estate as if the testator had died intestate. The statute goes on to say that a pretermitted child’s share is to be funded pro rata out of the shares of the other beneficiaries.  Note that the quoted statute only […]

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The Right for Trusts to Remain Silent

Under the Tennessee Trust Code, is a trustee required to give beneficiaries information about their trust? Not necessarily.

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Trust Funding & the Probate Omnibus Bill

An unassuming provision in the probate omnibus bill may prove to be a trap for some unwary practitioners. SB 0769, the 2017 Probate Omnibus Bill, has been transmitted to the Governor for his signature. One of the more perplexing provisions of the incipient law is Section 13, which adds the following to the end of T.C.A. § 35-15-402, Requirements for Creation [of a Trust]:  (d)   A lifetime trust is valid as to any assets held by the trust to the extent the assets have been transferred to the trust. For purposes of this subsection (d): (1)   Assets capable of registration, such as real estate, stocks, bonds, bank and brokerage accounts, and the like, are transferred to the trust through the […]

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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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Trustee’s Duty of Loyalty

A trustee owes a duty of loyalty to the beneficiaries of the trusts it administers. The Tennessee Trust Code succinctly describes this duty as follows: A trustee shall administer the trust solely in the interests of the beneficiaries. Generally, a trustee violates this duty if, with respect to trust property, it engages in a transaction in which the potential exists for a conflict between the trustee’s fiduciary and personal interests.  A blatant example is when the trustee enters into a transaction for its own account. Such transactions are irrebuttably presumed to be affected by a conflict between personal and fiduciary interests, regardless of whether the trustee acted in good faith or acted fairly. No further proof is necessary. In such cases, the transaction is […]

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Pledging a Beneficiary’s Interest in a Spendthrift Trust

The previous post refers to a scenario in which a trustee pledges trust assets to secure a beneficiary’s personal loan. But what if, instead of pledging trust assets, the beneficiary wants to pledge his interest in the trust as security for the loan. Is this possible? Most trusts contain a spendthrift provision. The Tennessee Trust Code defines a spendthrift provision as a “term of a trust which restrains both voluntary and involuntary transfer of a beneficiary’s interest.” Although the spendthrift clause found in most trusts is more verbose, it is legally sufficient to state the interest of the beneficiary is held subject to a spendthrift trust. A beneficiary’s pledge of his interest in the trust is a voluntary transfer. If […]

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