Since the 1990s, a trust law revolution has been underway in the United States.

Since the 1990s, a trust law revolution has been underway in the United States. Many changes have driven this revolution. Some have been common law based, such as the Restatement (Third) Prudent Investor Rule, but most have been statutorily based.

A number of states have improved a portion of their trust and banking statutes. However, in order to provide world-class trust law features, a state must demonstrate leadership in six, broad-ranging areas.

These include: availability of dynasty trusts; freedom from state income taxes; asset protection for self, and third party, settled trusts; explicit authority for, and protection of, directed trustees, protectors, etc.; express provisions for flexible trust administration and modification; as well as developed, effective and flexible bank regulatory law.

Currently, four states excel in all these areas: Delaware, New Hampshire, South Dakota and Tennessee.

While many will immediately recognize the first three as leading trust states, fewer may have included Tennessee in this select group. However, Tennessee quietly started a substantial and ongoing legislative renovation of its trust and banking laws in 1987, about the same time as that of more widely publicized Delaware.

I often compare these states to four fine automobiles. Which one you choose for your trust comes down to a matter of your needs and tastes. All are excellent choices. Nevertheless, feature-for-feature, there is now no better state than Tennessee in which to put your trust, because Tennessee gives you all these benefits:

-Dynasty trusts to enhance the federal generation-skipping transfer tax exemption and long-term asset protection.

-Long-lived purpose trusts and trusts for animals.

-No state income taxes on non-resident beneficiaries. Resident beneficiaries are only taxed on certain interest and dividends.

-You can opt-in to potential tax benefits of community property simply by designating a trust as a “Community Property Trust.”

-Discretionary trusts are not subject to claims of any creditor, even those for child or spousal support—no spendthrift provision required.

-One of the strongest spendthrift trust statutes, providing maximum protection from creditors—only the state of Tennessee, under very limited circumstances, can invade your trust.

-One of the stronger self-settled asset protection trust statutes—There is no exception for pre-existing tort claimants and very restrictive exceptions for marital and child support claims.

-Self-settled special needs trusts (broadly defined) are automatically granted asset protection from the settlor’s creditors with no waiting period and without having to follow the requirements of the general self-settled asset protection trust statute.

-Third party, investment and other advisors, protectors, distribution committees, etc., are authorized under a true, directed trust statute without breaching the trustee’s duty and without the trustee having any liability for those other parties’ acts.

-No trustee liability for life insurance investment, and exercise of policy option, decisions relative to insurance on the life of settlor, or on settlor together with the lives of any of: settlor's spouse, children, grandchildren or parents.

-The express authority to use affiliates and related parties or affiliated delegatees, as well as to invest in affiliates and private investment funds.

-Total return unitrusts that align interests of current and future beneficiaries—Trustees can either convert income-only trusts to and from unitrusts, or adjust income and principal.

-Confidential trusts or “quiet trusts,” of which the terms and other information can be withheld from beneficiaries at the settlor’s request; no statutorily required court filings or accountings; as well as the ability to require beneficiaries to maintain confidentiality regarding trust assets.

-Multiple ways to modify existing irrevocable trusts, many without involving a court—made easier because virtual representation will be allowed so long as no material conflict of interest (as opposed to no conflict of interest) exists between those representing and those being represented.

-The most flexible trustee’s decanting statute, giving a trustee the power to pour the assets of an old trust into a new one having provisions perhaps more appropriate for a situation that has changed, or thereby otherwise solving family issues.

-Special purpose courts that handle nothing but trust and estate matters.

-Flexible bank trust and fiduciary laws—broadest interstate trust and fiduciary services are facilitated.

-Pro-business climate / knowledgeable and effective regulators—Tennessee has yet to suffer a bank or trust company failure during the current economic decline.

Obtaining these benefits is easy. Regardless of where you live, you can have them simply by establishing a trust with, or changing the trustee of an existing trust to, a Tennessee bank or trust company.

And, unlike under some states’ laws (like Delaware’s), Tennessee will welcome your existing trust without it ever having to see the inside of a court.

Harold (Gus) Fletcher, JD, TEP, CFP(r), is a wealth management executive who founded and was president of a boutique, bank regulated trust company/multi-family office. Recently, he sold the company to a diversified financial services firm. He also served as chief fiduciary officer of the state chartered trust company, as well as senior trust counsel of a national trust bank operating in 14 US states and regulated by the OCC. Fletcher was a principal author of legislation instrumental in Tennessee achieving its status as a world-class trust jurisdiction.