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, issue, brother or sister; an employee of the grantor; a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control; or a subordinate employee of a corporation in which the grantor is an executive.

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