Normally, if you establish a Tennessee trust for your 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 within 2 years from the date of transfer, it is forever barred. However, the limitations on creditor access do not apply with respect to claims for past due child support, past due alimony, and division of marital property.
Upon your death, the assets in the TIST would pass as you set forth in the trust. In addition, you would have the power to direct the disposition of the trust by your will via a testamentary limited power of appointment.
To get the protection of a TIST, you must follow certain rules. Among these is that the trust must have a third party trustee who is a Tennessee resident or a state- or federally-chartered bank or trust company. Moreover, you cannot transfer so many assets to the trust that you render yourself insolvent. You cannot be contemplating bankruptcy. And you cannot transfer assets to the trust with the intent of defrauding a creditor.
Posted by Joel D. Roettger, JD, LLM, EPLS