A trust is a legal entity that contains a set of instructions on exactly how and when to pass assets to trust beneficiaries. Trusts can be used for various purposes, including as a will substitute to avoid probate, maintain privacy, minimize taxes, protect assets from creditors, and preserve assets for future generations.
Trusts can be either revocable or irrevocable. Examples of revocable trusts include community property trusts, joint revocable living trusts, and tenants by the entireties trusts. Irrevocable trusts include Tennessee Investment Services Trusts (TIST) and Life Insurance Trusts (ILIT). Irrevocable trusts generally cannot be altered, amended, revoked, or terminated once created unless certain stringent statutory requirements are met.
Tennessee law sets forth the minimum requirements to establish a trust and provides default provisions to control any unspecified trust terms. A trust may be created in four ways: 1) by transferring property to another person as trustee, by will, or by some other manner that will take effect upon the settlor’s death; 2) declaration by the owner of property that he or she owns that property as trustee; 3) by exercising a power of appointment in favor of a trustee; or 4) by a court.
For a trust to have legal effect, the trust must be created by someone with capacity who indicates an intention to create a trust. The trust must have a definite beneficiary, subject to a few exceptions (charitable trusts, pet trusts, or trusts subject to other Tennessee laws). The trust must also give the trustee actual duties to perform and the trustee must not be the sole beneficiary of the trust if he or she is also the sole trustee.
Since there are many types and uses for trusts, consulting with a professional is the best way to determine which type of trust will best suit your needs.