Tennessee § 35-15-105 - Default and mandatory rules.

§ 35-15-105. Default and mandatory rules.

Except as otherwise provided in the terms of the trust, this chapter governs the duties and powers of a trustee or any other fiduciary under this chapter, relations among trustees and such other fiduciaries, and the rights and interests of a beneficiary. The terms of a trust may expand, restrict, eliminate, or otherwise vary the duties and powers of a trustee, any such other fiduciary, relations among any of them, and the rights and interests of a beneficiary; provided, however, that nothing contained in this subsection (a) shall be construed to override or nullify the provisions of subsection (b). The rule of statutory construction that states that statutes in derogation of the common law are to be strictly construed shall have no application to this section. Except as restricted by subsection (b), pursuant to this section, courts shall give maximum effect to the principle of freedom of disposition and to the enforceability of trust instruments. The terms of a trust prevail over any provision of this chapter except: The requirements for creating a trust; The duty of a trustee to act in accordance with the terms and purposes of the trust and the interests of the beneficiaries; The requirement that a trust and its terms be for the benefit of its beneficiaries as the interests of such beneficiaries are defined under the terms of the trust, and that the trust has a purpose that is lawful and possible to achieve; The power to modify or terminate a trust under §§ 35-15-410 — 35-15-416; The effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in part 5 of this chapter; The power of the court under § 35-15-702 to require, dispense with, or modify or terminate a bond; The power of the court under § 35-15-708(b) to adjust a trustee's compensation specified in the terms of the trust which is unreasonably low or high; The effect of an exculpatory term under § 35-15-1008; The rights under §§ 35-15-1010 — 35-15-1013 of a person other than a trustee or beneficiary; Periods of limitation for commencing a judicial proceeding; The power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice; and The subject matter jurisdiction of the court and venue for commencing a proceeding as provided in §§ 35-15-203 and 35-15-204. Any purpose enunciated as a material purpose of a trust in that trust's trust instrument shall be treated as a material purpose of that trust for all purposes of this chapter and chapter 16. Acts 2004, ch. 537, § 6; 2007, ch. 24, §§ 4, 5; 2013, ch. 390, §§ 4-6. 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. Law Reviews. Agents in Secrecy: The Use of Information Surrogates in Trust Administration (Lauren Z. Curry), 64 Vand. L. Rev. 925 (2011). 1. Bad Faith Or Reckless Indifference. 2. Mandatory Obligation. Grant of summary judgment in favor of the bank in the decedent's daughter's action against it was appropriate pursuant to T.C.A. § 35-15-105(b)(8) and T.C.A. § 35-15-1008(a)(1) because nothing in the record indicated that the bank acted in bad faith or with reckless indifference; therefore, the terms of the will exonerating the bank, as trustee, prevailed in the case and the trial court was correct in so holding. Wood v. Lowery, 238 S.W.3d 747, 2007 Tenn. App. LEXIS 119 (Tenn. Ct. App. Mar. 6, 2007), appeal denied, — S.W.3d —, 2007 Tenn. LEXIS 695 (Tenn. Aug. 13, 2007). Trustees were under a mandatory obligation to distribute the remaining principal of such child's separate trust to such child, when the terminating event or events occurred, and because the trust did not provide otherwise, the trustees were to perform this task expeditiously, which they failed to do; because the trustees failed to take the appropriate actions for two years following the termination of the trust, the trial court was justified in ordering the clerk to prepare a deed to transfer the real estate to the beneficiaries. In re Farmer Family Trust, — S.W.3d —, 2018 Tenn. App. LEXIS 598 (Tenn. Ct. App. Oct. 11, 2018). Section Comment. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-105 . The provisions of this section in some ways diverge significantly from the Uniform Trust Code and the restatements. To the extent 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. It is the policy of the state of Tennessee, as well as the overriding objective of the Tennessee trust statutes: that a settlor’s intent be the lodestar by which a trust is interpreted; that such intent be carried out; and that settlors have the freedom to dispose of their assets to whom and in the manner they wish; all to the greatest extent constitutionally allowable. Significantly more strongly than does the Uniform Trust Code, T.C.A. § 35-15-105(a) emphasizes that the Tennessee Uniform Trust Code is primarily a default statute. While the Tennessee Uniform Trust Code provides numerous procedural rules on which a settlor may wish to rely, the settlor is generally free to override these rules and to prescribe the conditions under which the trust is to be administered. Subject to only the limited exceptions contained in T.C.A. § 35-15-105(b) (which are fewer in number and in certain cases, less restrictive, than in section 105 of the Uniform Trust Code), the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary are as specified in the terms of the trust. Moreover, in certain cases there need be no specific reference to the intent to override such default rules. One example of the myriad ways in which a settlor can override the default rules contained in the Tennessee Uniform Trust Code is that a settlor may override an otherwise applicable duty of loyalty in the terms of the trust. Sometimes such override is implied. For example, the grant to a trustee of authority to make a discretionary distribution to a class of beneficiaries that includes the trustee implicitly authorizes the trustee to make distributions for the trustee’s own benefit. Another way a settlor can override the default rules is such settlor can relieve a fiduciary from acting in good faith (such not being included in T.C.A. § 35-15-(b)(2). In order to do its utmost to assure all of the above, the Tennessee Uniform Trust Code rejects the rule of statutory construction that statutes in derogation of the common law are to be strictly construed. The subdivisions contained in T.C.A. § 35-15-105(b) (referred to hereafter in the comment to this section as “subdivision”) list the items not subject to override in the terms of the trust: Subdivision (b)(1) confirms that the requirements for a trust’s creation, such as the necessary level of capacity and the requirement that a trust have a legal purpose, are controlled by statute and common law, not by the settlor. For the requirements for creating a trust, see T.C.A. §§ 35-15-401 – 35-15-409 . Nevertheless, unlike the Uniform Trust Code, the Tennessee Uniform Trust Code contains no references to any impact of public policy on the purposes of a trust as such relates to the requirements for creating a trust under subdivisions (b)(1) or (b)(3). Subdivision (b)(2) provides that the terms may not eliminate a trustee’s duty to act in accordance with the terms and purposes of the trust and the interests of the beneficiaries. Unlike the Uniform Trust Code, the Tennessee Uniform Trust Code contains no reference to good faith in subdivision (b)(2). Therefore, a settlor may provide a standard other than good faith, (e.g., the Trustee's sole and absolute discretion, which standard under the Tennessee Uniform Trust Code contains no implied good faith or reasonableness standard) to govern the Trustee's actions. See T.C.A. § 35-15-814 for the standard by which a trustee’s exercise of discretion relative to a discretionary interest may be judicially reviewed or a distribution judicially forced. Moreover, absent some other restriction, a settlor is always free to specify the trust’s terms and the interests of the beneficiaries, to both of which the trustee must comply. Subdivision (b)(3) emphasizes that the “interests of the beneficiaries” are to be judged by such terms “as the interests of such beneficiaries are defined under the terms of the trust.” The Uniform Trust Code does not contain language similar to that contained in the last set of quotation marks above. Such language was added to the Tennessee Uniform Trust Code due to its overriding emphasis on settlor’s intent and freedom of disposition. Therefore, throughout the Tennessee Uniform Trust Code, whenever one encounters the phrase “that a trust and its terms be for the benefit of its beneficiaries” (or a similar phrase), one should automatically add to such phrase the remaining portion subdivision (b)(3), “as the interests of such beneficiaries are defined under the terms of the trust.” Under subdivision (b)(4), the power of the court to modify or terminate a trust under T.C.A. §§ 35-15-410 – 35-15-416 is not subject to variation in the terms of the trust. However, T.C.A. §§ 35-15-410 – 35-15-416 involve situations which the settlor could have addressed had the settlor had sufficient foresight. These include situations where the purpose of the trust has been achieved, a mistake was made in the trust’s creation, or circumstances have arisen that were not anticipated by the settlor. Subdivision (b)(5) clarifies that a settlor may not restrict the rights of a beneficiary’s creditors to a greater ex-tent than is allowed as provided in part 5. In conformity with traditional doctrine, the Tennessee Uniform Trust Code limits the ability of a settlor to exculpate a trustee from liability for breach of trust. The limits are specified in T.C.A. § 35-15-1008 . Subdivision (b)(8) provides a cross-reference. Similarly, subdivision (b)(7) provides a cross-reference to section T.C.A. § 35-15-708(b) , which limits the binding effect of a provision specifying a trustee’s, as well as a trust advisor’s or trust protector’s compensation. Subdivision (b)(9) clarifies that a settlor is not free to limit the rights of third persons, such as purchasers of trust property. Subdivision (b)(10) makes clear that the settlor may not reduce any otherwise applicable period of limitations for commencing a judicial proceeding. See T.C.A. § 35-15-604 (period of limitations for contesting validity of revocable trust), and T.C.A. § 35-15-1005 (period of limitation on action for breach of trust), as well as similar provisions regarding limitations periods applicable to trust advisors, trust protectors and other fiduciaries. Similarly, a settlor may not so negate the responsibilities of a trustee that the trustee would no longer be acting in a fiduciary capacity. Notwithstanding the preceding sentence, in a directed trust one or more fiduciary powers and duties can be removed from a trustee and given to another fiduciary, in which case relative to the powers and duties so removed, that trustee will be an excluded fiduciary. The terms of a trust may not deny a court authority to take such action as necessary in the interests of justice, including requiring that a trustee furnish bond, which are acknowledged by subdivisions (b)(11) and (b)(6), respectively. Additionally, subdivision (b)(12) similarly provides that provisions on subject matter jurisdiction and venue cannot be altered in the terms of the trust. Finally, Tennessee allows “quiet” trusts, under which information regarding a trust and its operations may, if certain requirements are met, be withheld from beneficiaries and holders of powers of appointment. Because of this, the Tennessee Uniform Trust Code has no provision corresponding with Uniform Trust Code subsections (b)(8) and (b)(9). To assure the overriding objectives of the Tennessee Uniform Trust Code as stated in the third paragraph of these section comments to this section, T.C.A. § 35-15-105(c) makes it clear that the materiality of any purpose of the trust can be controlled simply by stating such in a trust instrument. While the language of such subsection (c) is written in the positive, (i.e., “Any purpose enunciated as a material purpose… shall be treated as a material purpose…”), such necessarily implies that a settlor also has the power to so enumerate that a purpose of a trust is not a material purpose of a trust for all purposes of this chapter and chapter 16. 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.