Tennessee § 35-16-102 - Chapter definitions.

§ 35-16-102. Chapter definitions.

As used in this chapter, unless the context otherwise requires: “Claim” means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; “Creditor” means, with respect to a transferor, a person who has a claim; “Debt” means liability on a claim; “Disposition” means a transfer, conveyance or assignment of property, including a change in the legal ownership of property occurring upon the substitution of one (1) trustee for another or the addition of one (1) or more new trustees. “Disposition” also includes the exercise of a power so as to cause a transfer of property to a trustee or trustees, but shall not include the release or relinquishment of an interest in property that, until the release or relinquishment, was the subject of a qualified disposition; “Investment advisor” means a person given authority by the terms of an investment services trust to direct, consent to or disapprove a transferor's actual or proposed investment decisions, distribution decisions or other decisions of the transferor; “Investment decision” means the retention, purchase, sale, exchange, tender or other transaction affecting the ownership of or rights in investments; “Investment services trust” means an instrument appointing a qualified trustee or qualified trustees for the property that is the subject of a disposition, which instrument: Expressly incorporates the law of this state to govern the validity, construction and administration of the trust; Is irrevocable; and Provides that the interest of the transferor or other beneficiary in the trust property or the income from the trust property may not be transferred, assigned, pledged or mortgaged, whether voluntarily or involuntarily, before the qualified trustee or qualified trustees actually distribute the property or income from the property to the beneficiary; “Person” has the meaning ascribed to it in § 1-3-105; “Property” includes real property, personal property, and interests in real or personal property; “Qualified affidavit” means a sworn affidavit signed by the transferor before a disposition of assets to an investment services trust that meets the requirements of § 35-16-103. In the event of a disposition by a transferor who is a trustee, the affidavit shall be signed by the transferor who made the original disposition to the trustee, or a predecessor trustee, in a form that meets the requirements of subdivisions (7)(B) and (C) and shall state facts as of the time of the original disposition; “Qualified disposition” means a disposition by or from a transferor with or without consideration, to an investment services trust after the transferor executes a qualified affidavit; “Qualified trustee” means a person who: In the case of a natural person, is a resident of this state, or, in all other cases, is authorized by the law of this state to act as a trustee and whose activities are subject to supervision by the Tennessee department of financial institutions, the federal deposit insurance corporation, the comptroller of the currency, or the office of thrift supervision or any successor to them; Maintains or arranges for custody in this state of some or all of the property that is the subject of the qualified disposition, maintains records for the investment services trust on an exclusive or nonexclusive basis, prepares or arranges for the preparation of required income tax returns for the investment services trust, or otherwise materially participates in the administration of the investment services trust; and Is not the transferor; “Spouse” or “former spouse” means only persons to whom the transferor was legally married at, or before, the time the qualified disposition is made; “Transferor” means a person who, directly or indirectly, makes a disposition or causes a disposition to be made in such person's capacity: As an owner of property; As a holder of a power of appointment that authorizes the holder to appoint in favor of the holder, the holder's creditors, the holder's estate or the creditors of the holder's estate; or As a trustee; and Unless the context or a provision contained in this chapter provides otherwise, throughout this chapter, any form of the word “trustee,” whether singular or plural means “trustee, cotrustee or any other fiduciary” as fiduciary is defined at § 35-15-103 relative to any power or duty held by such fiduciary that could otherwise be held by a trustee, to the extent that such fiduciary is holding such a power or duty and is not an excluded fiduciary as defined at § 35-15-103 relative to that power or duty. Acts 2007, ch. 144, § 2; 2008, ch. 1010, § 1; 2010, ch. 725, § 13; 2013, ch. 390, § 44. 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 (5) An act done before July 1, 2013, is not affected by the act. 1. Bankruptcy. Living trust for which debtor served as trustee was not valid and enforceable Tennessee Asset Protection Trust (TAPT) such that its assets were excluded from bankruptcy estate because, while debtor held beneficial interest in trust during his lifetime, trust satisfied none of remaining requirements for valid TAPT, at least with respect to present lifetime trust. In re Erskine, 550 B.R. 362, 2016 Bankr. LEXIS 1169 (Bankr. W.D. Tenn. Apr. 8, 2016). Section Comment. “Claim” refers to any legal right to a payment, irrespective of the manner in which the right is acquired. “Creditor” means any person who has a claim against a Transferor. “Debt” means liability on a claim. “Disposition” refers to any transfer of property. A change of Trustees is a disposition. However, a change of Trustees of an Investment Services Trust after a Qualified Disposition was previously made does not require the execution of a new Qualified Affidavit to maintain the creditor protection provided by the previous Qualified Disposition. Exercising a general power of appointment to transfer property to a trust benefitting the person exercising the power is also a disposition. “Investment advisor” includes persons given authority to veto or approve investment decisions or distribution decisions. “Investment decision” means any decision affecting the ownership of or rights in investments owned by an Investment Services Trust. In order to be eligible as an “Investment Services Trust,” the trust agreement must be irrevocable, must appoint at least one Qualified Trustee, must incorporate Tennessee law to govern the validity, construction and administration of the trust, and must contain a “spendthrift” provision prohibiting the Transferor or any beneficiary from transferring, assigning, pledging or mortgaging their interest in the trust. “Person” includes natural persons as well as entities. Entities are allowed to establish an Investment Services Trust. “Property” includes all types of property, real and personal. Requiring the Transferor to execute a “Qualified Affidavit” prior to making a transfer of property to an Investment Services Trust reinforces the notion that fraudulent conveyances will not be effective to avoid creditors. The required statements for the affidavit to be qualified are set forth in T.C.A. § 35-16-103 . In order to take advantage of the creditor protection provided by an Investment Services Trust, the Transferor must make a “Qualified Disposition” to the Trust. In order to be a Qualified Disposition, the Transferor must execute a Qualified Affidavit prior to making a transfer to the trust. The definition of “Qualified Trustee” has both identity and activity components. The Trustee must be either an individual resident of Tennessee or a bank or trust company that is authorized by federal or Tennessee law to serve as a Trustee of a Tennessee trust. The Qualified Trustee must perform at least one of these 4 activities: maintain custody of some trust property in Tennessee, maintain trust records, prepare or arrange for preparation of trust tax returns, or materially participate in the administration of the trust. The Transferor will not qualify as a Qualified Trustee and should not so serve since serving as a trustee is not one of the authorized powers that the Transferor is allowed to retain pursuant to T.C.A. § 35-16-111 . Family members of the Transferor can meet the definition of a Qualified Trustee, though that may not the best choice. As long as the trust has at least one Qualified Trustee, there is no limit on the number of non-qualified co-trustees that may serve. 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.