Tennessee § 35-15-808 - Powers to direct — Transitional provisions.

§ 35-15-808. Powers to direct — Transitional provisions.

While a trust is revocable, the trustee may follow a direction of the settlor that is contrary to the terms of the trust or contrary to the normal practice of the trustee in regard to the action requested. If the terms of a trust, an agreement of the qualified beneficiaries, or a court order, 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. The terms of a trust may confer upon a trustee or other person a power to direct the modification or termination of the trust. Unless the terms of a trust provide otherwise, if a person holds a power to perform any act in reliance on §§ 35-3-122 and 35-3-123, and that power holder is other than a beneficiary, that person is 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 perform any act under this subsection (d) is liable for any loss that results from breach of a fiduciary duty. In so following the directions of such person the trustee is protected from liability as provided in §§ 35-3-122 and 35-3-123. If a person holds a power to direct pursuant to part 12 of this chapter, that person is a trust advisor, trust protector or both. Such power holder is subject to all the provisions of part 12, including any duties prescribed by part 12 and any provisions that make the power holder a fiduciary. Any trustee or other person that under part 12 is relieved of any duty or any liability, or is otherwise protected under part 12, shall be so relieved and otherwise protected. Transitional provisions applicable to this section shall be as follows: Powers to direct or perform any act held in reliance on or that are subject to §§ 35-3-122 and 35-3-123 that are in existence prior to July 1, 2013, remain effective thereafter and remain subject to the provisions of those sections and their protections; Notwithstanding subdivision (f)(1), should any power that is described in part 12 of this chapter be held under a trust instrument that was in existence or became irrevocable before July 1, 2013, and that power is not held in reliance on nor is it subject to §§ 35-3-122 and 35-3-123, then from July 1, 2013, all law relative to such power shall be controlled by and subject to part 12 of this chapter, along with any amendments made to this chapter in furtherance of the implementation and effectiveness of such part 12; and For all trust instruments entered into, that become irrevocable or that are amended relative to any power that is described in part 12 of this chapter on or after July 1, 2013, part 12 of this chapter, along with any amendments made to this chapter in furtherance of the implementation and effectiveness of such part 12, shall be the exclusive method to create a directed trust or a provision regarding such and shall control such. Relative to trusts described in this subdivision (f)(3) and subdivision (f)(2), §§ 35-3-122 and 35-3-123 shall be of no further force and effect. Acts 2004, ch. 537, § 66; 2013, ch. 390, § 31. 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. Section Comment. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-808 . 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. The 2013 amendments to the Tennessee Uniform Trust Code substantially rewrote this section, leaving the former version inoperative as provided in the enacting and transitional language of Section 55, Pub. Act. 2013, Pub. Ch. 390, 108th Gen. Assemb., Reg. Sess. (Tenn., 2013). Notwithstanding the above, Tennessee has had statutes fully providing for true directed trusts since the late 1980s, such provisions being contained in title 35, chapter 3. Part twelve (12) of the Tennessee Uniform Trust Code, added by such 2013 amendments, contains significantly more detailed provisions governing the operation of directed trusts than do Tennessee’s original 1980s directed trust statutes. Finally, many modifications to various other provisions of the Tennessee Uniform Trust Code and certain other provisions of the Tennessee trust statutes have been made to coordinate those provisions with such part twelve (12). For all these reasons, in addition to the transitional language of Section 55 of such public chapter, T.C.A. § 35-15-808(f) contains transitional provisions specifically applicable to directed trusts as such are defined in T.C.A. § 35-15-103 . Subsection (a) is an application of T.C.A. § 35-15-603 , which provides that a revocable trust is subject to the settlor's exclusive control as long as the settlor has capacity. Because of the settlor's degree of control, subsection (a) of this section authorizes a trustee to rely on a direction from the settlor even if it is contrary to the terms of the trust. The direction of the settlor might be regarded as an amendment of the trust. Subsection (a) has limited application upon a settlor's incapacity. An agent, conservator, or guardian has authority to give the trustee instructions contrary to the terms of the trust only if the agent, conservator, or guardian succeeds to the settlor's powers with respect to revocation, amendment, or distribution as provided in T.C.A. § 35-15-602 . Subsections (b) -- (e) ratify the use of trust protectors and advisers and make such, except as otherwise provided in the transitional provisions of subsection (f), subject to part twelve (12) of this chapter. Neither T.C.A. § 35-15-103 nor such chapter makes a distinction between the powers and duties that can be held by a fiduciary due to such being referred to as “trust advisor” versus “trust protector.” Traditionally, the former term has been used in the United States, while the latter term is often associated with non-U.S. trust practice. Both terms were included to assure anyone encountering the Tennessee Uniform Trust Code that, regardless of the term by which any such person was referred, such code provided for virtually any conceivable power and duty that could be held by a person referred to by either term. Both trust advisors and trust protectors are also included in the broader term, “fiduciary,” both being such unless provided otherwise in the terms of the trust as allowed by T.C.A. § 35-15-105 , or because one or more is an excluded fiduciary as such is defined in T.C.A. § 35-1-103 . Subsection (b) diverges from the Uniform Trust Code in that the various powers that can be held by either a trust advisor or a trust protector can be conferred in any of the following ways: by the terms of the trust, by an agreement of the qualified beneficiaries or by a court order. Moreover, subject only to a provision in a trust instrument to the contrary, a trustee or other fiduciary shall act in accordance with the exercise of a power held by any trust advisor or trust protector. Subsection (c) makes it clear that, regardless of what the power holder is named, such holder can be granted the power to direct modification or termination of a trust Numerous powers can be granted to a trust advisor or trust protector under the Tennessee Uniform Trust Code, including powers to direct and powers to veto. While both affect a trustee’s overall powers and duties, each affects such trustee in a different manner. A power to direct involves action initiated and within the control of a third party. A trustee usually has no responsibility other than to carry out the direction when made. But if a third party holds a veto power, a trustee is usually responsible for initiating the decision, subject to the third party's approval. Subsection (d) pertains to powers held in reliance on T.C.A. §§ 35-3-122 and 35-3-123 . These were the statutes fully providing for true directed trusts before the 2013 amendments to the Tennessee Uniform Trust Code. Under such sections, at times, the person holding the power is making directions relative to the holder's own beneficial interest. However at other times, the holder of the power is frequently making directions or other actions on behalf of others. In such latter case and as provided in subsection (d), unless provided otherwise in the terms of the trust, the holder is acting in a fiduciary capacity with respect to the powers granted and can be held liable if the holder's conduct constitutes a breach of trust, whether through action or inaction. Like a trustee, liability cannot be imposed if the holder has not accepted the grant of the power either expressly or informally through exercise of the power. See T.C.A. § 35-15-711 , which applies the provisions of T.C.A. §§ 35-15-701 to trust advisors, trust protectors and other fiduciaries other than a trustee. Subsection (e) pertains to powers held under part 12, which was created by the 2013 amendments to the Tennessee Uniform Trust Code. It simply directs one to such part 12 to determine the effect of holding such powers. Notwithstanding the preceding sentence and although such part 12 contains the majority of provisions governing trust advisors, trust protectors and any other fiduciaries other than trustees after the 2013 amendments, such amendments necessitated changes to other parts of the Tennessee Uniform Trust Code to coordinate them with the part 12. Therefore, one is advised to review other parts of the Tennessee Uniform Trust Code for sections containing references to part 12 or to trust advisors, trust protectors, other fiduciaries and excluded fiduciaries. In particular, T.C.A. §§ 35-15-710 – 35-15-715 provide for persons holding powers under directed trusts the mechanisms to accept, reject, remove or resign from office that are similar to equivalent provisions applicable to a trustee. Such sections also provide for how to handle vacancies in such offices, as well as any fiduciary’s bond regarding same. Subsection (f) contains transitional provisions specifically applicable to directed trusts as such are defined in T.C.A. § 35-15-103 to account for the changes in such trusts made by the 2013 amendments to the Tennessee Uniform Trust Code. As with the vast majority of other sections under the Tennessee Uniform Trust Code, the provisions of this section may be freely altered by the terms of the trust. See T.C.A. § 35-15-105 . By way of example and not in limitation, a settlor can provide that the trustee must accept the decision of the power holder without question. Alternatively, a settlor could provide that the holder of the power is not to be held to the standards of a fiduciary. A common technique for assuring that a settlor continues to be taxed on all of the income of an irrevocable trust is for the settlor to retain a nonfiduciary power of administration. See I.R.C. § 675. 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.