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You may have heard about the unique laws of Delaware, Alaska and a few other states that offer asset protection from future and unforeseen creditors. Or you may have heard of the dynasty trust which shelters assets for generations from estate and gift tax erosion. If traditional estate planning strategies have not offered the asset protection answers you seek, consider an alternative estate planning solution right here in Tennessee using advisors and trustees you know and trust.   

 

What is new in Tennessee?

On July 1, 2007 the Tennessee State Legislature enacted the Investment Services Act of 2007 substantially changing our state’s asset protection and dynasty trust laws.

 

Are the new laws important to you and your family?

They certainly could be.  

  • Under the prior laws of Tennessee, you could not place your own assets in a trust, retain distribution rights from the trust and still insulate those assets from the claims of future and unforeseen creditors.  Now, however, you can. The Asset Protection Trust allows you to retain power over the trust and keep the economic benefits for your lifetime.
  • Under the prior laws of Tennessee, a trust created for future heirs could utilize your $5,000,000 lifetime Generation Skipping Tax Exemption and continue tax protected for up to 90 years. Now, the assets can remain in a Dynasty Trust benefiting not only your children and grandchildren but the next 10 generations without the payment of estate or gift taxes.

 

What powers can you retain with an Asset Protection Trust?

You cannot serve as your own trustee, but your spouse, family members or a friend can serve as trustee as long as he or she is a resident of Tennessee.  You can also name a trust company authorized by Tennessee law, like Independence Trust Company, to serve as your current or future trustee. And there are other significant benefits and controls:

 

  • You can direct the investment of the trust assets.
  • You can receive the income earned by the trust.
  • The trustee can pay you up to 5% of the trust principal annually.
  • The trustee or an appointed advisor can exercise discretion to pay additional amounts of principal to you.
  • You can name the recipients of trust assets after your death.
  • Your trust can own your home while you still live in it.
  • You can veto a distribution by the trustee to another beneficiary of the trust.
  • You can remove any trustee or advisor and appoint new ones as long as the new appointees are not related or subordinate to you, the creator of the trust.

What are some limitations of the Asset Protection Trust?

  • The focus is on asset protection from future and unforeseen creditors. 
  • The asset protection generally begins four years after the assets are transferred to the Asset Protection Trust.
  • The trust agreement is irrevocable.
  • Distributions made from the trust may be garnished.
  • At least some portion of the assets you transfer to the trust must be administered in Tennessee.

 

How do I create my Asset Protection Trust?

While not a simple process, with capable assistance you can decide if this trust is suited for you.

  • Consider this trust for a single purpose or as part of an integrated planning strategy.
  • Analyze your total assets and your financial requirements to decide on specific assets and amounts for funding.  Encumbered assets are not appropriate for your trust.
  • Discuss the income, estate and generation skipping transfer tax considerations with your attorney because tax results will vary depending on the powers and benefits you retain or transfer. 
  • Your attorney will prepare your trust documents.
  • You need to select a corporate trustee authorized by Tennessee law to serve as trustee or an individual residing in this state.
  • You must execute an affidavit under oath identifying your current creditors and stating, among other things, that the purpose of your trust is not to defraud a creditor and that you do not have pending or threatened court action against you other than what you have disclosed within your affidavit.
  • If you are a Tennessee resident and have already established an Asset Protection Trust in another state, you may want to consider transferring your trust to Tennessee.

 

Independence Trust Company serves as trustee and investment advisor for clients in Tennessee and throughout the United States. For more information about Asset Protection Trusts or any of our services, please contact us at 615.591.0044.

 

 

This information has been prepared by Independence Trust Company to highlight issues which may be of interest to the recipient and is not intended as legal or tax advice. You are urged to seek legal, tax and accounting counsel for your particular situation before acting on topics discussed here. At Independence Trust Company, we assist our clients in managing and enhancing their wealth.  Please call us at 615.591.0044 with questions or to schedule a meeting.

© 2007 Independence Trust Company.

 

Independence Trust Company

P.O. Box 682188

Franklin, TN   37068-2188

www.independencetrust.com

615.591.0044

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