Bill Summary – FastDemocracy

This bill makes various changes and additions to present law concerning trusts and estates.
REPRESENTATION BY FIDUCIARIES AND PARENTS
     Under present law, to the extent there is no material conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute a person may represent and bind the person's minor or unborn descendant if a guardian for the descendant has not been appointed.  This bill adds a four-prong test to determine representation in cases where a disagreement or material conflict of interest arises between persons seeking to represent the same minor child or unborn child.
     This bill also adds that, to the extent there is no material conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute:
     (1)  When a trust is a beneficiary of another trust, the beneficiary trust may be represented by its trustee or, under certain circumstances, the beneficiary trust may be represented by those persons who are qualified beneficiaries or who would be qualified beneficiaries of the beneficiary trust if the beneficiary trust were then in existence; and
     (2)  An individual who has assumed responsibility for an incapacitated individual other than a minor child may represent and bind the individual if no conservator or guardian for the individual has been appointed and no agent has authority to act with respect to the matter in question, but an individual who is an employee of an assisted living, hospital, surgery center, nursing home, adult foster care, adult day care, or other custodial care institution where the incapacitated person is residing or receiving services may not act as a representative pursuant to this (2).
RETURN OF DISTRIBUTIONS
     In the event a trust or trust provision is adjudged to be invalid by the final judgment of the court, present law requires any beneficiary having received an improper distribution to return the improper distribution to the court.  This bill specifies that a distribution must also be returned upon a final determination that the distribution was made in error.
NONJUDICIAL SETTLEMENTS
     Present law generally authorizes a trustee and the qualified beneficiaries of a trust to enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust.
     This bill extends similar authorization to a personal representative for an estate and all persons whose interests would be affected to enter into a binding nonjudicial settlement agreement with respect to seven subjects that are listed in the full text of this bill.  A nonjudicial settlement agreement for an estate that is entered into pursuant to this bill is final and binding on all parties to the agreement.  This bill specifies that entering into or petitioning a court regarding a nonjudicial settlement agreement does not constitute a violation of a will provision that "cuts off" a beneficiary who challenges the will.  This bill also prohibits use of a nonjudicial settlement agreement for an estate in a manner that would cause the disqualification or loss of a federal tax benefit.
CO- AND SUCCESSOR TRUSTEES
     This bill specifies that the power to appoint a successor trustee under a trust instrument includes the power to appoint multiple successor trustees.  A presently exercisable power to remove and replace a trustee under a trust instrument includes the power to appoint additional trustees to serve with the current trustee.  The power to appoint multiple successor trustees and the power to appoint additional trustees includes the power to allocate various trustee powers.
     This bill specifies that all provisions of a trust instrument generally applicable to the trustees apply to a co- or successor trustee appointed under this bill.  Generally, any powers to appoint additional trustees, which are exercised in such a manner as to modify the duties of an existing trustee, do not become effective until 30 days after the receipt by the existing trustee of a written notice from the person authorized to appoint additional trustees detailing the changes.  Except as otherwise expressly provided by the terms of a trust instrument, the provisions of this bill concerning appointment of co- and successor trustees are available to any trust that is administered in Tennessee or otherwise governed by the laws of Tennessee.
TERMINATION OF TRUST
     Under present law, a noncharitable irrevocable trust may be modified upon the unanimous agreement of the trustee and all qualified beneficiaries if such modification does not violate a material purpose of the trust.  Additionally, a noncharitable irrevocable trust may be modified upon consent of all of the qualified beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.  This bill adds authorization to terminate a noncharitable irrevocable trust under the same conditions as modification under present law.
CREDITORS' CLAIMS
     Under present law and subject to certain conditions, any property of a husband and wife that was held by them as tenants by the entirety and subsequently conveyed as tenants by the entirety to the trustee or trustees of one or more trusts, and the proceeds of that property, have the same immunity from the claims of their separate creditors as would exist if the husband and wife had continued to hold the property or its proceeds as tenants by the entirety.  After a conveyance to a trustee under such circumstances, the property transferred is tenancy by the entirety property held by husband and wife.
     This bill instead provides that, after a conveyance to a trustee under the circumstances described above, the property transferred is no longer held by the spouses as tenants by the entirety, but is held by the trustee, in trust, and the spouses and the spouse's creditors have the rights as provided under present law with regard to the property.
LIMITATION ON PERSONAL LIABILITY OF BENEFICIARIES
     This bill adds that a beneficiary of a trust is not personally liable for the liabilities of third persons incurred in or arising from the administration of the trust or which are otherwise imposed upon the holder of the title to the property, including liabilities arising from contracts made by the trustee or torts committed by the trustee in the course of the administration of the trust.
DUTY OF LOYALTY
     This bill clarifies that the trustee's duty to administer a trust solely in the interests of the beneficiaries is subject to the manner in which the beneficiaries' interests are defined under the terms of the trust.
COMMUNITY PROPERTY TRUSTS
     The Tennessee Community Property Trust Act of 2010 defines "during marriage" to mean a period that begins at marriage and ends at dissolution or the death of a spouse.  Property owned by a community property trust is community property during marriage.  Generally, obligations incurred by one or both spouses during marriage may be satisfied from a community property trust.  This bill redefines "during marriage" to mean a period that begins at marriage and ends at dissolution or immediately after the death of a spouse.
     Whether or not both, one or neither is domiciled in this state, present law authorizes spouses to classify any or all of their property as community property by transferring property to a community property trust and providing in the trust that the property is community property.  This bill instead provides that, whether or not both, one or neither is domiciled in this state, spouses may transmute any or all of their property to community property by transferring property to a community property trust.
QUALIFIED AFFIDAVIT REQUIREMENTS
     This bill deletes the present requirements concerning qualified affidavits under the Tennessee Investment Services Act of 2007.
SETTLOR'S POWERS TO REMOVE AND APPOINT TRUSTEES
     This bill adds the following to the Tennessee Uniform Trust Code with regard to revocable trusts:
     (1)  Unless the terms of a trust expressly provide otherwise, the settlor of a revocable trust may remove a trustee or trustees and appoint a successor trustee or trustees by giving at least 30 days written notice to the removed trustee or trustees and the successor trustee or trustees; and
     (2)  If there are two or more settlors of the same revocable trust, then the removal and appointment of trustees must be made by unanimous decision of all settlors. 
DUTIES AND POWERS OF TRUSTEES
     This bill adds the following to the Tennessee Uniform Trust Code with regard to the duties and powers of trustees:
     (1)  Upon the occurrence of an event terminating or partially terminating a trust, or upon the trustee's removal or resignation, the trustee is required to proceed to distribute the trust property to the persons entitled to it within a reasonable period of time, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, attorney fees, and taxes; and
     (2)  A trustee may send a notice seeking to be relieved from liability upon such trustee's removal or resignation, or upon the full or partial termination of the trust.  The full text of this bill specifies the contents that any such notice must include and persons to whom the trustee must send the notice;
     (3)  The right of any person who is entitled to receive, or to whom the trustee voluntarily sends, a notice pursuant to (2), to object to the notice will terminate if the person does not provide a written objection within 45 days of receipt of the notice;
     (4)  If there is no timely objection under (3), then the trustee is required to distribute the trust's assets as provided in the proposal for distribution and the trustee is relieved from any liability for the most recent continuous period that the trustee served as trustee of the trust, and the persons who received notice are time barred from commencing various judicial proceedings as described in the full text of this bill;
     (5)  A trustee may rely upon the written statement of a person indicating no objection to the notice as a failure to object regardless of whether the time period has terminated; and
     (6)  If the trustee receives a timely written objection, then the trustee may resolve the objection by nonjudicial settlement agreement or seek judicial relief.
     ON MARCH 20, 2023, THE SENATE ADOPTED AMENDMENT #1 AND PASSED SENATE BILL 492, AS AMENDED.
     AMENDMENT #1 makes the following changes to this bill:
     (1)  Expands the powers of the representative to include, if only one person is a beneficiary of the trust that is the subject of the representation, that representative may represent a descendant that is a minor or an unborn descendant, rather than only a minor or unborn child;
     (2)  Removes this bill’s prohibition against an individual who is an employee of an assisted living, hospital, surgery center, nursing home, adult foster care, adult day care, or other custodial care institution where the incapacitated person is residing or receiving services acting as a representative;
     (3)  Removes this bill’s provision that states that the representative and all the persons whose interests may be affected may entered into a nonjudicial settlement agreement about the administration of the estate, and provides, instead, that the personal representative and all persons whose consent is required to reach a binding settlement to be approved by the court may enter into the agreement; 
     (4)  Removes the change of situs of a trust established by will as a matter that may be resolved by a nonjudicial settlement agreement and, instead, adds the ability to change the principle place of administration of a trust established by the will.  In addition, a nonjudicial settlement may also direct the decedent’s real property to be administered as a part of the estate that is subject to the control of the personal representative;
     (5)  Changes present law, which provides that, following the settlor's death, a noncharitable irrevocable trust may be terminated upon consent of all of the qualified beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust.  A noncharitable irrevocable trust may be modified upon consent of all of the qualified beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.  This amendment removes the requirement that in order to terminate a noncharitable irrevocable upon the consent of all qualified beneficiaries, a court’s ruling is necessary;
     (6)  Removes this bill’s provision that deletes the present requirements concerning qualified affidavits under the Tennessee Investment Services Act or 2007 as well as this bill’s rebuttable presumption that the transferor’s execution of a sworn instrument the assets were transferred on the date of execution; and
     (7)  Revises the provision in this bill regarding a settlor's powers by providing, instead, that the settlor of a revocable trust may remove a trustee and appoint a successor trustee by giving written notice to the trustee being removed and to the successor trustee being appointed.
Statutes affected: 
Introduced: 35-15-303, 35-15-604(c), 35-15-604, 35-15-103(12), 35-15-103, 35-15-710, 35-15-411(c), 35-15-411, 35-15-510, 35-15-802(a), 35-15-802, 35-17-102(5), 35-17-102, 35-17-105(a), 35-17-105, 35-16-102(10), 35-16-102, 35-16-103, 35-16-104(c), 35-16-104, 35-15-817, 35-15-816