Tennessee § 35-15-414 - Modification or termination of uneconomic trust.

§ 35-15-414. Modification or termination of uneconomic trust.

After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property having either a total value less than one hundred thousand dollars ($100,000) or for which the trustee's annual fee for administering the trust, as set forth in the trustee's published fee schedule, is five percent (5%) or more of the market value of the principal assets of the trust as of the last day of the preceding trust accounting year or the present market value of the principal assets of the trust if there is no applicable trust accounting for a preceding year may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration. The court may modify or terminate a trust or remove the trustee and appoint a different trustee if it determines that the value of the trust property is insufficient to justify the cost of administration. Upon the termination of a trust under this section, the trustee shall distribute the trust property to or for the benefit of the beneficiaries, in such shares as the trustee, or the court if a court proceeding, determines, after taking into account the interests of income and remainder beneficiaries so as to conform as nearly as possible to the intention of the settlor, but a trust that qualified for the marital deduction for tax purposes shall only be distributed to the spouse of the settlor for whom the trust was created. This section does not apply to an easement for conservation or preservation. This section shall not limit the right of a trustee, acting alone, to terminate a trust in accordance with applicable provisions of the governing instrument. Acts 2004, ch. 537, § 36; 2019, ch. 340, § 15. Amendments. The 2019 amendment rewrote (a) which read: “After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property having a total value less than one hundred thousand dollars ($100,000) may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.” Effective Dates. Acts 2019, ch. 340, § 20. May 10, 2019. Textbooks. Tennessee Jurisprudence. 6 Tenn. Juris., Charities, §§ 5, 17. Section Comment. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-414 . The provisions of subsection (c) 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. Subsection (a) assumes that a trust with a value of one hundred thousand dollars ($100,000) or less is sufficiently likely to be inefficient to administer that a trustee should be able to terminate it without the expense of a judicial termination proceeding. Because subsection (a) is a default rule, a settlor is free to set a higher or lower figure or to specify different procedures or to prohibit termination without a court order. See T.C.A. § 35-15-105 and the general comment to chapter 4 at T.C.A. § 35-15-401 . Subsection (b) allows the court to modify or terminate a trust if the costs of administration would otherwise be excessive in relation to the size of the trust. The court may terminate a trust under this section even if the settlor has for-bidden it. See T.C.A. § 35-15-105(b)(4) . Judicial termination under this subsection may be used whether or not the trust is larger or smaller than one hundred thousand dollars ($100,000). When considering whether to terminate a trust under either subsection (a) or (b), the trustee or court should consider the purposes of the trust and whether any material purposes exist relative to the trust. Termination under this section is not always wise. Even if administrative costs may seem excessive in relation to the size of the trust, protection of the assets from beneficiary mismanagement or from a beneficiary’s creditors may indicate that the trust be continued. The court may be able to reduce the costs of administering the trust by appointing a new trustee. Upon termination of a trust under this section, subsection (c) requires that the trust property be distributed in a manner that conforms as nearly as possible to the intention of the settlor. Often, distribution under this section will be made to the qualified beneficiaries in proportion to the actuarial value of their interests. However, subsection (c) states that a trust that qualified for the marital deduction for tax purposes shall only be distributed to the spouse of the settlor for whom the trust was created. Overall the provisions of subsection (c) are stricter than those in the Uniform Trust Code and such provisions are designed to further settlor’s intent and freedom of disposition. In addition to outright distribution to the beneficiaries, T.C.A. § 35-15-816(21) authorizes payment may be made to a variety of alternate payees. Even though not accompanied by the usual trappings of a trust, the creation and transfer of an easement for conservation or preservation will frequently create a charitable trust. The organization to whom the easement was conveyed will be deemed to be acting as trustee of what will ostensibly appear to be a contractual or property arrangement. Because of the fiduciary obligation imposed, the termination or substantial modification of the easement by the “trustee” could constitute a breach of trust. The drafters of the Tennessee Uniform Trust Code concluded that easements for conservation or preservation are sufficiently different from the typical cash and securities found in small trusts that they should be excluded from this section, and subsection (d) so provides. Most creators of such easements, it was surmised, would prefer that the easement be continued unchanged even if the easement, and hence the trust, has a relatively low market value. For the law of conservation easements, see Restatement (Third) of Property: Servitudes § 1.6 (2000). Subsection (e) is not contained in the Uniform Trust Code. It reinforces a trustee’s power, acting alone, to terminate a trust in accordance with the terms contained in a trust instrument. While this section is not directed principally at honorary or purpose trusts, it may be so applied. See T.C.A. §§ 35-15-408 and 35-15-409 . Because termination of a trust under this section is initiated by the trustee or ordered by the court, it is not necessarily precluded by a spendthrift provision. However, the court is urged to consider whether a spendthrift (or any other) provision is a material purpose of the trust and if it finds such purpose should be reluctant to terminate the trust, balancing the benefit of any such material purpose with the perceived need to terminate the trust. Moreover, under T.C.A. § 35-15-105(c) , “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.” Note that under the Tennessee Uniform Trust Code a trust advisor or trust protector may have the power to directly or indirectly modify a trust without being subject to T.C.A. §§ 35-15-410 – 35-15-412 and 35-15-414 .