Tennessee Approves Tenants by the Entirety Trusts
On April 14, 2014, the Tennessee Legislature approved a new type of trust known as a Tenants by the Entirety Trust (“TBET”).
A TBET is a joint trust for a married couple that provides the same protection from the claims of the separate creditors of the husband and wife as would exist if the husband and wife owned the trust assets directly as tenants by the entirety.
Being able to transfer tenants by the entirety property to a TBET without sacrificing creditor protection will make it more feasible for couples to use revocable trusts for their various benefits, including incapacity management, probate avoidance, and privacy.
A TBET only provides creditor protection for property that was held by the spouses as tenants by the entirety property prior to the conveyance of the property to the trust. The additional requirements of a TBET include: (1) the husband and wife must remain married; (2) the property must continue to be held in trust by the trustee(s) or their successors in trust; (3) while both the husband and wife are living, the trust must be revocable by either spouse or by both of them acting together; (4) both spouses must be beneficiaries of the trust; and (5) the trust instrument, deed, or other instrument of conveyance must specify that the provisions of the new statute apply to the property.
Traditional tenants by the entirety property automatically passes to the survivor upon the death of the first spouse. A TBET is more flexible. For example, the TBET could convert to an irrevocable trust for the benefit of the survivor, with the remainder to pass to children after the survivor’s death. This structure would provide better asset protection for the survivor as well as better protection to the children if the survivor remarries.
After the death of the first spouse to die, the property will continue to be exempt from the claims of the decedent’s separate creditors. To the extent the survivor may withdraw the trust assets, the property will be subject to the claims of the survivor’s separate creditors.
Creditor protection may be waived as to any specific creditor or any specifically described trust property, but only if expressly permitted by the trust instrument, deed, or other instrument of conveyance or if the husband and wife both give their written consent. This provision allows a house subject to a mortgage to be transferred to a TBET.
TBETs may be created on or after July 1, 2014.