Tennessee § 35-15-504 - Discretionary interests — Effect thereof.

§ 35-15-504. Discretionary interests — Effect thereof.

A discretionary interest is neither a property interest nor an enforceable right; it is a mere expectancy. Relative to a discretionary interest, whether or not a trust contains a spendthrift provision: No creditor or assignee shall force or otherwise reach a distribution with regard to a discretionary interest; No creditor or assignee shall require a trustee, cotrustee or other fiduciary to exercise the trustee's, cotrustee's or other fiduciary's discretion to make a distribution with regard to a discretionary interest; Regardless of whether a beneficiary has any outstanding creditors or assignees, a trustee, cotrustee or other fiduciary of a discretionary interest may directly pay any expense on behalf of such beneficiary and may exhaust the income and principal of the trust for the benefit of such beneficiary; No trustee, cotrustee or other fiduciary is liable to any creditor or assignee for paying the expenses of a beneficiary of a discretionary interest; Regardless of whether a beneficiary holding a discretionary interest is also a trustee, cotrustee or other fiduciary, subdivisions (b)(1)-(4) remain applicable if: The beneficiary-fiduciary does not have the discretion to make or participate in making distributions to such beneficiary-fiduciary; The beneficiary-fiduciary's discretion to make or participate in making distributions to such beneficiary-fiduciary is limited by an ascertainable standard; or The beneficiary-fiduciary's discretion to make or participate in making distributions to such beneficiary-fiduciary is exercisable only with the consent of a cotrustee or another person holding an adverse interest. A creditor or assignee may compel or otherwise reach a distribution only to the extent the creditor or assignee may compel or otherwise reach a distribution if the beneficiary was not acting as a trustee, cotrustee or other fiduciary. Acts 2004, ch. 537, § 43; 2007, ch. 24, § 22; 2013, ch. 390, § 17. Compiler's Notes. Acts 2013, ch. 390, § 55 provided that: (b) Except as otherwise provided in the act, on July 1, 2013: The act applies to all trusts created before, on, or after July 1, 2013; The act applies to all judicial proceedings concerning trusts commenced on or after July 1, 2013; The act applies to judicial proceedings concerning trusts commenced before July 1, 2013, unless the court finds that application of a particular provision of the act would substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties, in which case the particular provision of the act does not apply and the superseded law applies; Any rule of construction or presumption provided in the act applies to trust instruments executed before July 1, 2013, unless there is a clear and express indication of a contrary intent in the terms of the trust; and An act done before July 1, 2013, is not affected by the act. Textbooks. Tennessee Jurisprudence. 22 Tenn. Juris., Spendthrift Trusts, § 1. Section Comment. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-504 . The provisions of this section diverge significantly from the Uniform Trust Code and the restatements. To the ex-tent this section is in conflict with the Uniform Trust Code, any restatement or any other foreign law, such foreign law is not precedential or controlling and is rejected by the Tennessee Uniform Trust Code. This section addresses the effect of a trust (a “discretionary trust”) containing a distribution interest that is a discretionary interest. Unlike the Uniform Trust Code and Restatement (Third) of Trusts, the Tennessee Uniform Trust Code maintains the traditional common law distinction between a trust having a discretionary interest (a “discretionary trust”) and a trust having a support interest (a “support trust”). These distinctions and the general effects thereof are also discussed in other places throughout the Tennessee Uniform Trust Code and its comments. Two notable places a reader is directed are; the section comments related to the term “discretionary interest” in T.C.A. § 35-15-103 ; and the comments under the heading “Part 5. Creditor’s Claims; Spendthrift and Discretionary Trusts.” in T.C.A. § 35-15-101 . Subsection (a) expresses the traditional common law rule that a discretionary interest under a trust is not a property interest. Therefore it is not an enforceable right, but only a mere expectancy. Because a discretionary interest is only an unenforceable expectancy and not a property interest, such can in no way “belong” to any beneficiary in their capacity as a beneficiary. The provisions of subsection (a) diverge significantly from the Uniform Trust Code and the restatements. To the subsection (a) is in conflict with the Uniform Trust Code, any restatement or any other foreign law, such foreign law is not precedential or controlling and is rejected by the Tennessee Uniform Trust Code. Subsection (b) expresses both the traditional common law view regarding the effects of, as well as what is simply the logical outcome of, the fact a discretionary interest is not a property interest, is not an enforceable right and is only an expectancy. The provisions of subsection (b) diverge significantly from the Uniform Trust Code and the restatements. To the subsection (b) is in conflict with the Uniform Trust Code, any restatement or any other foreign law, such foreign law is not precedential or controlling and is rejected by the Tennessee Uniform Trust Code. The traditional common law view regarding the effects of, as well as what is simply the logical outcome of, the fact a discretionary interest is not a property interest, is not an enforceable right and is only an expectancy follow Relative to a discretionary interest: A spendthrift provision is not required in order to gain any protective benefits or attributes of a discretionary interest. Such protective benefits and attributes are inherent in such interest. No creditor or assignee (hereinafter in the comments to this section, individually and collectively, simply “creditor”) has the ability to force or otherwise reach a distribution. No creditor has the ability to force a trustee, cotrustee or other fiduciary (hereinafter in the comments to this section, individually and collectively, simply “fiduciary”) to exercise discretion relative to such interest. The existence of any creditor of any beneficiary in no way impacts a fiduciary’s right or ability to directly pay any expense on behalf of such beneficiary; and such fiduciary may exhaust a trust for the benefit of such beneficiary. In other words a fiduciary need not make a discretionary distribution to a beneficiary. Instead such fiduciary has the power to directly pay to a third party any expense for the benefit of such beneficiary and no creditor may reach such payment. If a fiduciary makes such a direct payment, it is not possible for such fiduciary to incur liability to any creditor for so doing. Despite a beneficiary also being a fiduciary, all of the above holds trust so long as: the beneficiary-fiduciary has no discretion to make or participate in making any distribution to such beneficiary-fiduciary; or the beneficiary-fiduciary has discretion to make or participate in making any distribution to such beneficiary-fiduciary, but such discretion is limited by an ascertainable standard; or the beneficiary-fiduciary has discretion to make or participate in making any distribution to such beneficiary-fiduciary, but such discretion is only exercisable with the consent of another fiduciary or another person having an interest adverse to such beneficiary-fiduciary. In any event, a creditor of a beneficiary-fiduciary cannot compel or otherwise reach a distribution to a greater extent than could such creditor compel or otherwise reach a distribution if the beneficiary was not also acting as a fiduciary. If a right is acquired, extinguished, or barred upon the expiration of a prescribed period that has commenced to run under any other statute before July 1, 2013, that statute continues to apply to the right even if it has been repealed or superseded.