Tennessee § 35-16-104 - Restrictions on actions, remedies and claims.

§ 35-16-104. Restrictions on actions, remedies and claims.

Notwithstanding any law to the contrary, no action of any kind, including, but not limited to, an action to enforce a judgment entered by a court or other body having adjudicative authority, shall be brought at law or in equity for an attachment or other provisional remedy against property that is the subject of a qualified disposition to an investment services trust or for the avoidance of a qualified disposition to an investment services trust, unless the action is brought pursuant to the Uniform Fraudulent Transfer Act, compiled in title 66, chapter 3, part 3, and, in the case of a creditor whose claim arose after a qualified disposition, unless the qualified disposition was also made with actual intent to defraud such creditor. Notwithstanding § 66-3-310, a creditor's claim under subsection (a) shall be extinguished: If the person is a creditor when the qualified disposition to an investment services trust is made, unless the action is commenced within the later of two (2) years after the qualified disposition is made or six (6) months after the person discovers or reasonably should have discovered the qualified disposition; or If the person becomes a creditor after the qualified disposition to an investment services trust is made, unless the action is commenced within two (2) years after the qualified disposition is made; If subdivision (b)(1) applies: A person shall be deemed to have discovered the existence of a qualified disposition to an investment services trust at the time any public record is made of any transfer of property relative to such qualified disposition, including but not limited to, the conveyance of real property that is recorded in the office of the county register of deeds of the county in which the property is located or the filing of a financing statement under title 47, chapter 9, or the equivalent recording or filing of either with the appropriate person or official under the laws of a jurisdiction other than this state; and No creditor shall bring an action with respect to property that is the subject of a qualified disposition unless that creditor proves by clear and convincing evidence that the settlor's transfer of such property was made with the intent to defraud that specific creditor. For purposes of this chapter, a qualified disposition that is made by means of a disposition by a transferor who is a trustee shall be deemed to have been made as of the time, whether before, on or after July 1, 2007, the property that is the subject of the qualified disposition was originally transferred to the transferor acting in the capacity of trustee, or any predecessor trustee, in a form that meets the requirements of § 35-16-102(7)(B) and (C). Notwithstanding any law to the contrary, a creditor, including a creditor whose claim arose before or after a qualified disposition, or any other person shall have only the rights with respect to a qualified disposition that are provided in this section and § 35-16-106, and neither a creditor nor any other person shall have any claim or cause of action against the trustee, or an advisor of an investment services trust, or against any person involved in the counseling, drafting, preparation, execution or funding of an investment services trust. For purposes of this section, counseling, drafting, preparation, execution or funding of an investment services trust includes the counseling, drafting, preparation, execution and funding of a limited partnership or a limited liability company if interests in the limited partnership or limited liability company are subsequently transferred to the investment services trust. Notwithstanding any law to the contrary, no action of any kind, including, but not limited to, an action to enforce a judgment entered by a court or other body having adjudicative authority, shall be brought at law or in equity against a trustee or an advisor of an investment services trust, or against any person involved in the counseling, drafting, preparation, execution or funding of an investment services trust, if, as of the date such action is brought, an action by a creditor with respect to the investment services trust would be barred under this section. In circumstances where more than one (1) qualified disposition is made by means of the same investment services trust, then: The making of a subsequent qualified disposition shall be disregarded in determining whether a creditor's claim with respect to a prior qualified disposition is extinguished as provided in subsection (b); and Any distribution to a beneficiary shall be deemed to have been made from the latest qualified disposition. If, in any action brought against an investment services trust, a court takes any action whereby the court declines to apply the law of this state in determining the effect of a spendthrift provision of the trust, the trustee of the trust shall immediately upon the court's action and without the further order of any court, cease in all respects to be trustee of the trust and a successor trustee shall succeed as trustee in accordance with the terms of the trust or, if the trust does not provide for a successor trustee and the trust would otherwise be without a trustee, a court of this state, upon the application of any beneficiary of the trust, shall appoint a successor trustee upon the terms and conditions it determines to be consistent with the purposes of the trust and this chapter. Upon the trustee's ceasing to be trustee, the trustee shall have no power or authority other than to convey the trust property to the successor trustee named in the trust in accordance with this section. An investment services trust shall be subject to this section whether or not the transferor retains any or all of the powers and rights described in § 35-16-111 or serves as an investment advisor pursuant to § 35-16-109. Notwithstanding subsection (a) or (b) to the contrary, the limitations on actions by creditors in law or equity shall not apply and such creditors' claims shall not be extinguished if the transferor is indebted on account of an agreement, judgment or order of a court for the payment of one (1) of the following: Past due child support; Past due alimony in solido of a spouse or former spouse; Past due alimony or support of a spouse or former spouse; or A written agreement, judgment or order of a court for division of marital property of a spouse or former spouse, but only to the extent of such debt, legally mandated interest and the reasonable cost of collection. A claim provided under this subsection (i) shall be asserted against a trustee only: Upon a final non-appealable determination of a Tennessee court or a fully domesticated, final non-appealable order of a court of another state as defined by § 35-15-103 that such debt is past due; and After the court has determined that the claimant has made reasonable attempts to collect the debt from any other sources of the transferor or that such attempts would be futile. Nothing in this subdivision (i)(2) shall be construed to prohibit the court from making the findings required in subdivisions (i)(2)(A)(i) and (ii) in the same proceeding and order. Subsection (i) shall not apply to any claim for forced heirship, legitime or elective share. In addition to subsection (j), to the extent subsection (j) applies to the laws of any foreign country: For all purposes under this chapter, the effect of the laws of any foreign country shall be the same as provided in § 35-15-107(b)(3) and (4); and Subsection (a) applies in addition to all other provisions of this chapter. Acts 2007, ch. 144, § 4; 2008, ch. 1010, § 2; 2010, ch. 725, §§ 14-16; 2013, ch. 390, §§ 45-47. 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. Attorney General Opinions. Creditors' claims under the Tennessee Investment Services Act of 2007. OAG 11-79, 2011 Tenn. AG LEXIS 81 (11/17/11). Section Comment. Use of Terms T.C.A. § 35-15-505(a)(2) generally precludes an individual from transferring his or her assets to a trust as a shield against the settlor’s creditors. Investment Services Trusts are an exception to this general rule. Subsection (a) specifies that creditors are generally restricted from reaching the assets held in an Investment Services Trust. With certain exceptions, no action of any kind, including enforcement of a judgment, may be brought to attach trust property. Creditors seeking to reach trust property are limited to only those actions available through the Tennessee Uniform Fraudulent Transfer Act. Thus, if a transfer to an Investment Services Trust is found to be a fraudulent transfer, the assets can be reached. Subdivision (b)(1) creates two separate statutes of limitations for creditors to bring claims against an Investment Services Trust or a Qualified Disposition of property to an Investment Services Trust. For claims arising before the date of a Qualified Disposition, the claim must be initiated within two years or, if later, within six months after the disposition was or could reasonably have been discovered by the creditor. If the claim arises at the same time or later than the disposition, the limitations period is two years. A person shall be deemed to have discovered the existence of a Qualified Disposition when any public record is made regarding the transfer of property to the Investment Services Trust. The statute provides a non-exclusive list of types of public records, including a deed that is recorded in the register of deeds and the filing of a financing statement under the Tennessee Uniform Commercial Code. Even if a creditor fits within the applicable statute of limitation, the creditor may not bring an action with respect to property that is the subject of a Qualified Disposition unless the creditor proves by clear and convincing evidence that the Transferor’s transfer was made with intent to defraud that specific creditor. Subsection (c) contains a tacking rule which provides that the amount of time that trust assets are held in a predecessor trust may be added to the time the assets are considered held in the Investment Services Trust. This tacking provision could be important in cases involving dispositions that are otherwise still within the applicable limitations period but were generated by previous dispositions from another asset protection trust. Notwithstanding other provisions of the law, there is a complete bar against actions brought by creditors against a Qualified Trustee or trust advisor. This bar extends to claims against persons who provide counseling, drafting, preparation, execution, or funding of the trust. The same limitations periods applicable for claims against trust assets apply to claims brought against the trustee or trust advisor. When multiple Qualified Dispositions are made to an Investment Services Trust, each disposition is tested on its own to see whether it is protected from creditors. Distributions are deemed to be made from the latest Qualified Disposition to the Investment Services Trust. A Trustee of an Investment Services Trust automatically ceases to serve if a court declines to apply Tennessee law in determining the validity, construction, or administration of such trust, or the effect of its spendthrift clause, in a proceeding involving such Trustee. If a trustee ceases to act, any successor trustee designated in the trust will take its place. The trust may have non-Tennessee co-trustees and advisors. Two classes of creditors are exempted from the provisions protecting trust assets. Child support obligations and those stemming from alimony or spousal support are outside of the statute’s protections. Importantly, the statute defines “spouse” or “former spouse” as a person to whom the Transferor was married at or before the time of the qualified distribution. Thus, dispositions in trust made before the Transferor’s marriage are protected from spousal claims by the statute. Unlike some domestic asset protection trust statutes, tort claimants are not “exception creditors” in Tennessee. In order for an “exception creditor” to reach assets in an Investment Services Trust, there must be final court order that a debt is due for child support, alimony, support, or division of marital property. The court must also determine that the claimant has made reasonable efforts to collect the debt or that such attempts would be futile. Creditors may not reach assets of an Investment Services Trust for forced heirship, legitime or elective share. 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.