The Knowledge You Need on the Tennessee Investment Services Act of 2007

The “Tennessee Investment Services Act of 2007,” (the “Act”) allows a person to create a self-settled asset protection trust. Tennessee is still one of only a handful of states to enact legislation permitting the creation of a self-settled, or self-created, asset protection trust.

Before the Act was passed in Tennessee, an individual could not protect his or her wealth from creditors and lawsuits while also retaining some control of his or her assets.   The Act allows an individual to create his or her own trust and maintain a certain level of control over the trust, while also protecting his or her assets from creditors and lawsuits.

One of the biggest perks of the Act is the trustmaker’s ability to retain a certain level of control over the trust. The trustmaker may retain the following rights, which include, but are not limited to, the rights to:

• direct the investment of the assets;
• receive distributions of principal at the discretion of the trustee;
• live in a home owned by the trust;
• veto distributions to any other permissible beneficiaries;
• direct the distribution of the trust assets upon death to any one or more persons;
• remove the trustee and other trust advisors and appoint their successors under certain provisions

In order to meet the statutory requirements, the trust must be carefully drafted and administered. For example, the trust must be irrevocable, meaning that the terms of the trust cannot be modified. Additionally, Tennessee law must govern the trust, and at least a portion of the assets of the trust must be administered in Tennessee. The person creating the trust cannot serve as Trustee, and the trustee of the trust must either be a resident of Tennessee or a corporate fiduciary authorized to conduct business in Tennessee. The trustmaker must also sign an affidavit that states, among other things, that the transferor of the assets to the trust is solvent and does not intend to defraud his or her creditors.

The Act implements a two year “look back” rule. This means that, after two years have passed since the assets were transferred to the trust, the trustmaker’s creditors cannot seize the assets of the trust to satisfy claims against the trustmaker.

It is important to note that the Act does NOT apply to certain creditors, claims or judgments, including those for past due child support, past due alimony or support of a spouse of former spouse or agreements setting forth division of marital property.

In summary, the Tennessee Investment Services Act of 2007 provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. The trust presents a unique solution to those who wish to protect their assets during their lifetime while still retaining the ability to manage those assets and benefit from them.