Tennessee Trust and Estate Law Legislative Update (April 2019)

Update:

HB0675/SB0542 (Re Trusts and Guardianships) enacted as pc0197

HB0676/SB0699 (Re Trusts and Disclaimers) enacted as pc0340

HB0190/SB0174 (Re Executor’s Oath) enacted as pc0332

What follows is my summary of the Tennessee trust and estate bills from the current legislative session and the laws from the previous legislative session as presented to the Trust and Estate section of the Memphis Bar Association on April 24, 2019.

The copies of the two most significant bills that have passed both houses with my annotations can be found here (my summary is below):  SA0339  SB0542

Prior Session: 110th General Assembly

Public Chapter No. 280 – Estates.

  • Abstract. As enacted, makes various changes to probate law, including requiring that the receipt of a distributee or legatee be executed under penalty of perjury or sworn before the clerk or a notary public.
  • Summary:
    • Accountings Waived. If accountings waived, court cannot require. A status report is required instead on the same timeline.
    • That Ornery Beneficiary. If accountings are waived, you can now close on acknowledgment (receipt and waiver) even if you are missing a receipt and waiver. TCA 30-2-601(b)(2).
    • Receipts must be sworn.30-2-601(d); 30-2-707
    • NEW AOC REQUIRED RECEIPT FORM!!

Public Chapter No. 290 – Probate Law.

  • Abstract. As enacted, revises various provisions relative to wills, trusts, and guardianship.
  • Summary.
    • PR Claim against estate. New Procedure if the Personal Representative files a claim. 30-2-307; 30-2-313
    • Revised Slayer Statute. 31-1-106
    • Revised Parentage Statute 31-2-105.
    • Will – Disposition of personalty. May incorporate a written list, even if not yet in existence if in handwriting of testator or signed by testator and meets certain other requirements. T.C.A. § 32-3-115
    • Funding Trusts. 35-15-402(d). A “blanket” assignment is not good enough.
      • Assets capable of registration must be registered.
      • Assets incapable of registration must be assigned with particularity.
    • Trust SOL re Directed Trusts Conformed. See 35-15-1005.

Public Chapter No. 632 – Trusts.

  • Abstract. As enacted, expands the persons to whom a private trust company may do business with and limits the ability of the commissioner of financial institutions to modify or revoke certain exemptions granted to a private trust company.

Public Chapter No. 887 Trusts.

  • Abstract. As enacted, clarifies circumstances under which a trust may be construed as a total return unitrust.
  • NOTE, THIS IS REVERSED IN LEGISLATION DISCUSSED BELOW.

THIS SESSION: 111th General Assembly

Signed by Bill Lee

Public Chapter No. 101; SB0381/HB0596.

  • Murderer cannot file wrongful death… TCA 31-1-106(c)(3)

Public Chapter No. 135; HB0249/SB0199.

  • Establishes the Elder Abuse Task Force. Includes commissioners from various governmental entities, the TBI, bankers associations and etc. Charged with assessing protections of elderly.

Awaiting Governor’s Signature

HB0190/SB0174 – Executor’s Oath.

  • Bill Caption: Estates – As introduced, requires the administrator or executor of an estate to swear an oath that the representative is not disqualified from serving due to receiving a sentence of imprisonment. – Amends TCA Title 30 and Title 40.
  • Bill Status: Transmitted to Governor for his action. 4/23/2019

HB0686/SB0711 – Re Public Guardian for < 60.

  • Bill Caption: Guardians and Conservators – As introduced, allows the district public guardian to serve as conservator for disabled persons younger than 60 years of age, if certain conditions are met. – Amends TCA Section 34-7-104.
  • Rob’s Bill Summary: Under certain circumstances, and if requested, the Court may appoint the Public Guardian to act as Conservator for a respondent even though the respondent is under 60. The court must find:
    • (i) There are no other less intrusive alternatives available for the disabled person; and
    • (ii) The disabled person has no family members or other person, bank, or corporation willing and able to serve as conservator.
  • Bill Status: Transmitted to Governor for his action. 4/23/2019

HB0675/SB0542 – Re Trusts

  • Bill Caption: As introduced, allows a revocable living trust that becomes irrevocable upon the death of the settlor to refer to a written statement of personal property not otherwise disposed of by the revocable trust; gives a trustee who has resigned or been removed the right and authority to petition the court for a release and discharge from all liability related to the trust, makes various other revisions.
  • Rob’s Bill Summary:
    • Avoiding Small Guardianships.
      • Background. Current law has varying amounts ($20,000 and $25,000) under different circumstances that are eligible to avoid a court guardianship upon court approval (i.e., the amount is different if the amount payable to a minor is from a lawsuit versus a life insurance death benefit).
      • The bill harmonizes the amount for which a court guardianship can potentially be avoided and a court could order a custodial account ($25,000).
    • Total Return Unitrust Conversion. Fixes the Total Return Unitrust Conversion so that more trusts will qualify—It reverses a 2018 amendment.
      • Background. A total return unitrust conversion can be helpful where a trust requires all income to be distributed. The problem that arises with income trusts is the push and pull investment decisions attempting to balance the interests of current beneficiaries and remainder beneficiaries. Income beneficiaries want income producing assets. Remainder beneficiaries want capital appreciation. A conversion to a total return trust changes the requirement of income to be changed to an annual distribution of trust assets based on the value of the trust assets. The percentage is 3-5% as determined by the trustee. See T.C.A. §35-6-108.
      • Summary of Amendatory language: The amendatory language broadens the number of trusts that will qualify for conversion. It reverses a 2018 amendment that narrowed trusts that would qualify. I am informed that this was done to prevent one private trust from qualifying for conversion. I suppose the remainder beneficiary was a state senator (or knew one very well).
    • Revocable Trusts and Personal Effects.
      • Background. Current law might not allow for incorporation of lists of personal effects in a revocable trust unless the requirements for incorporation by reference are met such as that the document predate the trust.
      • Bill Summary. Allows a revocable trust to incorporate a list disposing of personal effects that is signed or in the handwriting of the trust grantor.  (it protects a trustee that distributes without knowledge of the list).
      • What about Wills? This was updated in 2018. The new law is harmonizing law with the 2018 law allowing this to happen in a Will. See T.C.A. § 32-3-115.
    • Separate “Shares” or Separate Trust? Separate “shares” are actually separate trusts. It also clarifies that duties to a beneficiary of one share/trust shall be distinct from the other trusts.  This seems to be attempting to clarify that information about one trust is not available to a beneficiary of another trust among other things.
    • Recordation Tax for Deeds from in Testamentary Trusts. Deeds upon termination of a testamentary trust are exempt from recordation tax. Currently, you have to do a quitclaim deed out of a trust other than a revocable trust to avoid recordation tax.
  • Bill Status: Transmitted to Governor for action. 04/18/2019

HB0676/SB0699 – Re Trusts

  • Bill Caption: As introduced, enacts the “Tennessee Disclaimer of Property Interests Act.”
  • Rob’s Bill Summary:
    • Disclaimer Act. The old disclaimer act is deleted and the uniform act is substituted. (I have NOT compared the Tennessee act to the actual uniform act to see if or to what extent it varies from the uniform act).
    • Use of Trusts in Conservatorships/Guardianships. The Court is vested with authority to allow the establishment of a trust with part of the conservatorship/guardianship assets. The court clerk must be named as “trust protector” with all powers under 35-15-1201.
    • Re Charities as Trust Beneficiaries.
      • Current law.
        • When is a charity a qualified beneficiary? When is the AG a qualified beneficiary???
        • Under current law, Charities do not have rights as Qualified Beneficiaries unless they’re either current beneficiaries or vested remaindermen. In other words, a Charity doesn’t need to sign off on a Nonjudicial Settlement Agreement if they’re a remote contingent beneficiary. 35-15-110
        • Under current law, a trust may easily be defined as a Charitable Trust (35-15-103 (6)). “‘Charitable Trust’ means a trust, or portion of a trust, created for a charitable purpose described in § 35-15-405(a).”
        • Under current law, the Attorney General has the rights of a Qualified Beneficiary for Charitable Trusts.
        • Does that mean that (under current law) a change of trustee for a trust that has a remote contingency in favor of charity needs to be approved by the AG???? Unclear.
      • New Law. Clarifies that an AG only has the rights of a Qualified Beneficiary where a charity (or several charities) are current beneficiaries or are vested remainder beneficiaries.
    • Judicial Release upon Final Accounting.
      • Confirms that a trustee (or co-trustee) may petition for a final accounting prior to turning assets over to a new trustee requesting a release and discharge.   To be new § 35-15-205 and affects a few other sections
      • A Q’d beneficiary or successor trustee may likewise initiate such a proceeding.
      • A court may award the trustee attorney fees against the trust.
      • A trustee may not be sued on a final accounting if approved by a court.
    • Virtual Representation – Representation of takers in default by holder of power of appointment. TCA 35-15-302
      • Current Law. Under current law, to the extent there is no material conflict of interest, the holder of a power of appointment may represent and bind those who would inherit in the event that the power were not exercised (i.e., takers in default).
      • New Law. A distinction is made between a general power and a limited power. Essentially, prior law still applies to a power of appointment other than a general power of appointment. However, if the power holder has a general power of appointment, they may represent and bind the takers in default regardless of whether the power holder has a material conflict.
    • Modifying and Terminating a Non-Charitable Irrevocable Trust – T.C.A. § 35-15-411. The new law is longer, but has modest changes which are primarily clarifications and to coordinate with § 111 (NJSA).
    • Terminating Small Trust § 414. Keeps the $100,000 bright line rule, but adds an additional bright line where the costs of administration is more than 5% of the market value of trust assets.
    • Trust Code New Part 13 – ‘Special Purpose Entity’ as Trust Protector/Advisor. Similar to the practice of having an LLC as a general partner of a limited partnership, new part 13 of the trust code allows an LLC to serve as a Trust Protector/Advisor under certain defined circumstances similar to a Private Trust Company.
  • Bill Status: Passed both house and senate—Headed to the Governor’s Desk.

Stay Tuned,

Rob Malin

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