Tennessee § 35-15-501 - Application; rights of beneficiary's creditor or assignee.

§ 35-15-501. Application; rights of beneficiary's creditor or assignee.

This part applies to a creditor's or assignee's claims and ability to reach mandatory, support and discretionary interests regardless of whether such interests are subject to a spendthrift provision. To the extent not otherwise prohibited by this part, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's distribution interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances. Acts 2004, ch. 537, § 40; 2007, ch. 24, § 21; 2013, ch. 390, § 15. 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or prejudice the rights of the parties, in which case the particular provision of the act does not apply and the superseded law applies; Any rule of construction or presumption provided in the act applies to trust instruments executed before July 1, 2013, unless there is a clear and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. 12 Tenn. Juris., Executions, § 56; 22 Tenn. Juris., Spendthrift Trusts, § 1. Law Reviews. Symposium: The Role of Federal Law in Private Wealth Transfer: Comment, Pro and Con (Law): Considering the Irrevocable Nongrantor Trust Technique, 67 Vand. L. Rev. 1999 (2014). 1. Spendthrift Provision. Appellate court construed trust as restraining the voluntary and involuntary transfer of farm property itself, but also as allowing a beneficiary to voluntarily transfer a year's worth of income from the property; thus, that portion of the spendthrift provision pertaining to voluntary alienation of farm income was invalid, and debtor's interest in that income was subject to execution. Atkins v. Marks, 288 S.W.3d 356, 2008 Tenn. App. LEXIS 349 (Tenn. Ct. App. June 11, 2008), rehearing denied, 288 S.W.3d 356, 2008 Tenn. App. LEXIS 449 (Tenn. Ct. App. July 15, 2008). General Comment. The provisions of part five (5) of the Tennessee Uniform Trust Code diverge, in many cases significantly, from the provisions contained in Uniform Trust Code, as well as from the Restatement (Third) of Trusts, on which much of part 5 of the Uniform Trust Code was based. To the extent part 5 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. Part five (5) of the Tennessee Uniform Trust Code offers far more creditor protection to trusts and their beneficiaries than does the Uniform Trust Code or the Restatement (Third) of Trusts. This is achieved in a number of ways, some of which are enumerated hereafter. Relative to spendthrift trusts, T.C.A. § 35-15-503 contains no exception creditors other than the state of Tennessee, and then only to the extent that a statute of the state of Tennessee so provides. The protection given by the Tennessee Uniform Trust Code to discretionary trusts is far broader than that provided by the Uniform Trust Code and, unlike under the latter, there are no exception creditors relative to an interest held in a discretionary trust. Under the Tennessee Uniform Trust Code, a discretionary interest held in a trust (a “discretionary trust”) does not require a spendthrift provision in order to gain the protective benefits or attributes of a discretionary interest. Such protective benefits an attributes are inherent in such interest. When combined with the Tennessee Uniform Trust Code’s definition of what constitutes a discretionary trust, only a limited number of the types of trusts typically used for donative purposes do not obtain the benefit of such creditor protection. This is in keeping with the objective of the Tennessee trust statutes that a settlor should have the broadest freedom to dispose of their assets to whom, and in the manner, they wish (and to only those persons, and in only such manner, as a settlor wishes). Such creditor protection respects that the assets in the trust initially belonged to the settlor and not the beneficiary. When those assets are put in a discretionary trust, the beneficiary obtained only beneficial rights that do not rise to the status of a property interest and, therefore, cannot be reached by creditors, even absent a spendthrift provision. Under the Tennessee trust statutes, an irrevocable special needs trust is shielded from claims by creditors of the settlor regardless of whether or not such trust complies with the provisions of chapter 16, the Tennessee Investment Services Trust Act. Finally, any interest of a beneficiary under a support trust likewise does not rise to the status of a property interest and is therefore protected from creditors, even absent a spendthrift provision. Notwithstanding the above, the Tennessee trust statutes still respect the right of beneficiaries of support and mandatory interests to obtain redress for a trustee’s failure to respect such interests due such beneficiaries under them. However, no creditor of any such beneficiary has such right and can only reach a distribution made from such interests after the distribution is made and then in only specified circumstances. The provisions of this part relating to the validity and effect of a spendthrift provision, as well as the rights of certain creditors and assignees to reach a spendthrift trust, or a mandatory, support or discretionary interest, may not be modified by the terms of the trust. See T.C.A. § 35-15-105(b) . This part does not generally supersede this state’s exemption statutes nor this state’s Uniform Fraudulent Transfers Act, T.C.A. title 66, chapter 3, part 3. Nevertheless, certain provisions of this part modify certain provisions of such act. Section Comment. The section generally describes the overall application of title 35, part 5. It also states that, to the extent not otherwise prohibited by such part 5, a court may authorize a creditor or assignee of the beneficiary to reach the beneficiary’s distribution interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. Finally, it grants such court the discretion to limit any such award to any such creditor or assignee to such relief as is appropriate under the circumstances. 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.