Tennessee Community Property Trust

Today, one of my clients called me because his Trustee is moving to Colorado.  Five years ago, he established a Tennessee Investment Services Trust, a/k/a asset protection trust.  The creditor protection provided by these trusts is dependent upon the Trustee being a Tennessee resident or trust company.

Tennessee Community Property Trusts have the same requirement.  You need a Tennessee trustee if you want to obtain the benefits provided by these trusts.

When your Trustee of one of these two types of trusts moves away from Tennessee, you must change the Trustee to a Tennessee resident or trust company.  You should first review the trust agreement to see if a successor trustee has already been designated.  Assuming that a successor has been designated, the currently serving Trustee can resign and the successor can take over.  It is customary for the successor to ask the beneficiaries to release the successor from the duty of investigating the actions of the prior Trustee.

If no successor is designated in the trust agreement, then you will need to follow the procedures set forth in the trust agreement to appoint a successor.  With asset protection trusts, you must appoint a Disinterested Trustee, i.e. a corporate Trustee or a Tennessee resident who is not a beneficiary or related to you.  In the case of a Tennessee Community Property Trust, the Trustee does not have to be Disinterested.

Most other types of trusts do not require a Tennessee trustee.  However, be wary of a potential tax problem.  Some states, such as California, impose state income taxes just because the Trustee resides in that state.  You can avoid these taxes by appointing a different Trustee.

I recommend that you call your trust attorney when your Trustee moves away from Tennessee.

I occasionally update estate planning documents for clients who move to Tennessee from a community property state. There are 9 community property states, including Texas, California, Arizona, Washington, Idaho, Louisiana, Nevada, New Mexico, and Wisconsin. The other 41 states are known as common law states.

I am currently updating estate planning documents for clients who recently moved from Arizona to Tennessee. As is so often the case with clients in community property states, these clients utilized a joint revocable trust as a centerpiece of their estate plan. I am amending their joint revocable trust so that it qualifies as a Tennessee Community Property Trust.

The assets that were in the trust at the time of the move were already community property. The amendment was not needed to qualify the prior assets as community property. However, additional assets that my clients acquire would not otherwise qualify as community property. By qualifying the trust as a Tennessee Community Property Trust, the additional assets will also qualify for community property benefits.

When clients do not already have a joint revocable trust at the time of their move, they have 2 choices for preserving the community property status of their assets acquired while married in the community property state. They can either create a Tennessee Community Property Trust and transfer the assets to the trust or they can sign a Community Property Agreement which documents the community property assets at the time of the move. The trust has the advantage of creating community property status for later acquired assets.

Community property is a valuable benefit that should be maintained when moving to a common law state. A Tennessee Community Property Trust is the preferred method for preserving this benefit.