Changes to Petition for Approval of Final Accounting
A judicial process for approving a final accounting provided by a trustee who is resigning or has been removed, or who is otherwise ceasing to serve due to the termination of the trust, is provided for in Tenn. Code Ann. § 35-15-205. Often when there is a change in trusteeship, either due to resignation or removal, the former trustee wishes to achieve a complete termination and resolution of all fiduciary liability. In some situations, it is common for the former trustee and beneficiaries to affirmatively and expressly waive liability by agreement. In other situations, the fiduciary liability will be extinguished only by providing a final accounting of the trust and waiting for the expiration of the one-year statute of limitation for commencing an action.
For trustees who wish to accelerate this one-year period, Tenn. Code Ann. § 35-15-205, which was added to the TN UTC in 2019, authorizes the trustee to prepare and file a final accounting with a court and seek not only approval of the accounting, but a full release and discharge of liability. This section also provides that costs and expenses, including reasonable attorneys' fees, of such an action is charged to the trust unless the court determines otherwise.
The recent changes to this statute are in recognition that parties other than trustees and trust beneficiaries might have an interest in the judicial proceeds. As such, the scope of parties who may take action or to whom an obligation is owed pursuant to Tenn. Code Ann. § 35-15-205 has been expanded to reflect the recent trend of Trust Protectors and Trust Advisors being included in trust agreements and granted various rights.
Discharge of Fiduciary Liability Upon Change of Trustee or Termination of Trust
Similar to the revisions noted above, the recent legislative action included a complete overhaul of Tenn. Code Ann. § 35-15-817, which generally deals with the distribution of trust property upon termination (partial or full) of a trust or a change of trusteeship. Again, the intent of the recent revision was to permit a trustee to take affirmative actions in an effort to accelerate the time during which breach of fiduciary duty claims may be brought. Tenn. Code Ann. § 35-15-817 now contains a method for a trustee to provide written notice and other detailed information, including a proposed plan of distribution, concerning the administration of the trust (the "Notice") to the grantor, qualified beneficiaries, co-trustees, trust advisors and other interested parties.
Further, Tenn. Code Ann. §35-15-817(f) grants the recipient of the Notice a 45-day window during in which the recipient may object to anything contained in the Notice. If there are no objections made within this 45-day period, the trustee may distribute the remaining assets as described in the Notice. Additionally, the trustee will be relieved from any fiduciary liability for the period covered by the Notice, including the manner in which terminating distributions are made. Alternatively, if an objection is made, the parties can attempt to resolve the dispute by a nonjudicial settlement agreement pursuant to Tenn. Code Ann. § 35-15-111, or the trustee can file an accounting and seek release from the court pursuant to Tenn. Code Ann. § 35-15-205. As with the changes noted above, this revision is intended to provide an orderly method for trustees to extinguish their fiduciary liabilities to the applicable parties, so as to provide clarity on everyone's legal rights arising from the administration of the trust.
Liberalization of Technical Aspects of Trust Decanting
One of the more widely discussed trends in trust administration and planning over the last 20 years has been the exponential growth of trust decanting. As states have gradually revised and updated their trust laws, the ability to decant trust assets has spread to a large minority, if not a slight majority, of the states. In general, the decanting of a trust involves the transfer of all or some of the assets of an existing trust to a wholly different trust. Trustees and beneficiaries encountering unanticipated events or otherwise seeking to maximize the benefits of a trust often find the ability to transfer assets to a new trust extremely appealing. In the last legislative session, Tennessee's decanting power was updated to provide for more liberal usage. The recent changes made during this legislative session to the decanting power are intended to lessen the administrative burden to reflect reality.
Previously, Tennessee's decanting statute did not permit decanting from a trust to another trust where both trusts are governed by the same instrument. Thus, the statute required two separate trust agreements. The recent revision removed this requirement by including the defined term "second trust" which did away with the limitation. However, the recent changes went further by including in the definition of second trust, a trust created as a result of the modification or restatement of the original trust. Thus, the decanting power can be exercised by restatement of the original trust, rather than creating an entirely new trust. A significant benefit of the restatement approach to decanting is that it does not require retitling of property, which can be a time-consuming and tedious process.
Over the past decade, the Tennessee legislature, working in collaboration with a consortium of interested parties, has taken significant action to establish and, thereafter, maintain Tennessee's status as one of the leading jurisdictions for trust administration. The enhancements made during the current legislation session were intended to provide a more practical framework for trust administration while continuing to build on the historical efforts undertaken to further distinguish Tennessee's trust laws from those of other jurisdictions.