Tennessee § 35-15-1201 - Powers of trust advisors and trust protectors.

§ 35-15-1201. Powers of trust advisors and trust protectors.

A trust protector or trust advisor is any person, and may be a committee of more than one person, other than a trustee, who under the terms of the trust, an agreement of the qualified beneficiaries, or a court order has a power or duty with respect to a trust, including but not limited to, one or more of the following powers: The power to modify or amend the trust instrument to achieve favorable tax status or respond to changes in any applicable federal, state, or other tax law affecting the trust, including but not limited to, any rulings, regulations, or other guidance implementing or interpreting such laws; The power to amend or modify the trust instrument to take advantage of changes in the rule against perpetuities, laws governing restraints on alienation, or other state laws restricting the terms of the trust, the distribution of trust property, or the administration of the trust; The power to appoint a successor trust protector or trust advisor; The power to review and approve a trustee's trust reports or accountings; The power to change the governing law or principal place of administration of the trust; The power to remove and replace any trust advisor or trust protector for the reasons stated in the trust instrument; The power to remove a trustee, cotrustee, or successor trustee, for the reasons stated in the trust instrument, and appoint a successor; The power to consent to a trustee's or cotrustee's action or inaction in making distributions to beneficiaries; The power to increase or decrease any interest of the beneficiaries in the trust, to grant a power of appointment to one (1) or more trust beneficiaries, or to terminate or amend any power of appointment granted in the trust; The power to perform a specific duty or function that would normally be required of a trustee or cotrustee; The power to advise the trustee or cotrustee concerning any beneficiary; The power to consent to a trustee's or cotrustee's action or inaction relating to investments of trust assets; The power to direct the acquisition, disposition, or retention of any trust investment; The power to appoint under § 35-15-816(b)(27); The power to terminate all or part of a trust; The power to veto or direct all or part of any trust distribution; The power to borrow money with or without security, and mortgage or pledge trust property for a period within or extending beyond the duration of the trust; The power to make loans out of trust property, including but not limited to, loans to a beneficiary on terms and conditions, including without interest, considered to be fair and reasonable under the circumstances; The power to vote proxies and exercise all other rights of ownership relative to securities and business entities held by the trust; The power to select one (1) or more investment advisors, managers or counselors, including but not limited to, a trustee and delegate to them any of its powers; and The power to direct the trustee with respect to any additional powers and discretions over investment and management of trust assets provided in the trust instrument. The exercise of a power by a trust advisor or a trust protector shall be exercised in the sole and absolute discretion of the trust advisor or trust protector and shall be binding on all other persons. Any power of a trust advisor or trust protector to directly or indirectly modify a trust may be granted notwithstanding §§ 35-15-410 — 35-15-412 and 35-15-414. An excluded fiduciary may continue to follow the direction of a trust protector or trust advisor upon the incapacity or death of the grantor of a trust to the extent provided in the trust instrument. Notwithstanding anything in this section to the contrary, no modification, amendment or grant of a power of appointment with respect to a trust all of whose beneficiaries are charitable organizations may authorize a trust protector or trust advisor to grant a beneficial interest in such trust to any non-charitable interest or purpose. Acts 2013, ch. 390, § 43. 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. General Comment. Section 808 of the Uniform Trust Code nominally provides irrevocable trusts with what ULC - NCCUSL calls “powers to direct,” as follows: “(b) If the terms of a trust confer upon a person other than the settlor of a revocable trust power to direct certain actions of the trustee, the trustee shall act in accordance with an exercise of the power unless the attempted exercise is manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust. “(c) The terms of a trust may confer upon a trustee or other person a power to direct the modification or termination of the trust. “(d) A person, other than a beneficiary, who holds a power to direct is presumptively a fiduciary who, as such, is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. The holder of a power to direct is liable for any loss that results from breach of a fiduciary duty.” Section 808 of the Uniform Trust Code is a significant step toward providing for “powers to direct.” However, it does not contain many of the provisions necessary for: certainty regarding the rights and responsibilities of those granting or serving under such “powers to direct;” certainly regarding the rights and responsibilities of those from whom certain traditional powers and duties of a trustee were removed through such direction; as well as a default set of rules that assure the smooth interaction of the various parties involved in the administration of such trusts. This part 12 (along with various other provisions of the Tennessee Uniform Trust Code) is designed to comprehensively cover directed trusts. Because the Uniform Trust Code does not contain provisions similar to those provided by this part 12, the effects of the provisions of this part 12 may result in significant divergence from the Uniform Trust Code and the restatements. To the extent this part 12, as well as other portions of the Tennessee Uniform Trust Code designed to facilitate or implement this part 12, are 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. A true directed trust is a trust in which the trustee is directed by a number of other trust participants in implementing the trust's execution. That trustee is referred to as a directed trustee. Examples of other trust participants (those directing the trustee) include an investment committee, a distribution committee, trust advisors, trust protectors and in-vestment advisors. Relative to any duty traditionally held by a party, but directed to another under the terms of a directed trust, that person no longer holding the duty is called an excluded fiduciary. A directed trustee's role is often limited to: following distribution and investment instructions, holding legal title to the trust assets, providing fiduciary and tax accounting, coordinating trust participants and offering dispute resolution among those participants. That directed trustee is otherwise an excluded fiduciary. Typically, these duties and those of the other participants in the trust are defined and governed by the trust document itself (however, under part 12 of the Tennessee Uniform Trust Code, such respective powers and duties can be added after the fact by agreement of the qualified beneficiaries or by a court order). Directed trusts are also referred to by several other names: “Reserved powers trusts” – Reserved, because someone, typically a settlor reserves to himself or to others, certain powers normally held by a trustee. Although this term is used in the United States, one is more likely to encounter it relative to trusts under the laws of Commonwealth jurisdictions, or that were written by Commonwealth attorneys. “Multi-participant trusts” – Perhaps this name best functionally describes a true directed trust. As stated above, such types of trusts operate in a system under which multiple parties hold the diverse powers and duties traditionally vested in a unitary trustee. Such latter term is used in several articles to which a reader is directed: John P.C. Duncan and Anita M. Sarafa, Multi-Participant Trusts Need a Coordinator , Trusts & Estates, November 2008 at 32, (hereinafter “Duncan and Sarafa—Multi-Participant Trusts ”); and John P.C. Duncan and Anita M. Sarafa, Achieve the Promise—and Limit the Risk—of Multi-Participant Trusts , 36 ACTEC Law Journal 769 (2011), (hereinafter “Duncan and Sarafa—Achieve the Promise ”). This latter article contains an especially thorough and detailed discussion of the trend toward “creating ‘multi-participant trusts’ and review[s] the challenges to achieving the promise of this powerful arrangement while limiting its risks.” Duncan and Sarafa—Achieve the Promise at 769. Why would someone want to use a directed (multi-participant) trust? Such trusts are beneficial in a number of situations, including but not limited to the following: High net-worth families’ diverse and complex needs often make a directed (multi-participant) trust the optimum structure with which to effect multi-generational wealth planning. Directed trusts are also often the optimum (and in many cases, mandatory) multi-generational wealth planning structure for international and cross-border families. Perhaps one of the most succinct explanations of the factors contributing to an increase in the use of directed (multi-participant) trusts is as follows: “There has been a proliferation of trusts with new participants that are required to act under a trust in addition to or in place of the traditional, plenipotent trustee. These can include co-trustees, directed trustees, trust advisors for investment and other functions, trust protectors, distribution advisors and committees, removers and appointers. The primary developments contributing to this trend are dramatic recent changes in trust law, distrust of traditional trustees, a desire to relieve trustees of liability, growing sophistication and complexity in the investment world, growing assertiveness among settlors and families seeking to exercise greater control over certain trust functions, growth in dynasty trusts, special purpose trusts requiring special expertise to administer, federal tax law limits on family involvement in distribution decisions and vigorous competition between several states for trust business. Multi-participant trusts are being fashioned to address each of the foregoing opportunities and challenges.” Duncan and Sarafa—Achieve the Promise at 774. Part 12 and related changes to other parts of the Tennessee Uniform Trust Code included in the 2013 amendments thereto significantly expand the detail and clarity with which the subject of directed trusts is covered in the Tennessee trust statutes. However, such types of trusts are not new to Tennessee law or to the Tennessee trust statutes. As mentioned in the section comment to T.C.A. § 35-15-808 , Tennessee has one of the longest histories of having statutes that expressly and fully provide for true directed trusts. Since the late 1980s, they have been specifically provided for in title 35, chapter 3. The applicable sections in such chapter read as follows: 35-3-122. Liability of fiduciaries for losses. Whenever an instrument under which a fiduciary is acting reserves to the settlor or vests an advisory or in-vestment committee or in any other person or persons including one (1) or more other fiduciaries, to the exclusion of the fiduciary or to the exclusion of one (1) or more of several fiduciaries, authority to direct the making or retention of any investment, or to perform any other act in the management or administration of the fiduciary account, the excluded fiduciary or fiduciaries shall not be liable, either individually or as a fiduciary, for any loss resulting from the making or retention of any investment or other act pursuant to that direction. HISTORY: Acts 1987, ch. 89, § 2, effective date unknown, but likely July 1, 1987. 35-3-123. Trustee liability — Action upon written directions. 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.