The Advantages of Tennessee Trusts: Investment Services Act Trusts

Tennessee is often at the cutting edge of trust law, as evidenced by its recent passage of laws allowing for the creation of Tenancy in the Entirety trusts, which will be a topic of one of my future posts along with posts on other types of Tennessee trusts.

Tennessee Investment Services Act trusts are excellent vehicles for protection of assets, particularly real and personal property located in Tennessee as well as for bank and investment accounts custodied in Tennessee. Investment Services Act trusts are Tennessee’s version of what are colloquially known as domestic asset protection trusts. These trusts can serve more purposes than simply protecting assets from creditors, although they are of course excellent for that purpose.

The basic concept of all trusts is that there is a person who gives property (typically called a grantor or settlor) to a person (known as a trustee) to hold on behalf of the trust’s beneficiaries. Historically, all of the states forbid self-settled spendthrift trusts. “Self-settled” means the grantor (i.e. the person putting the assets into the trust) is also a beneficiary. “Spendthrift” is a provision whereby the trustee decides how the trust funds are spent for the beneficiary, and therefore creditors cannot reach the funds in the trust. Generally, this means the beneficiaries do not have direct control over the trust. It should be noted however that a creditor of that beneficiary could reach any property distributed to that beneficiary.

In 1997, Alaska became the first state to allow self-settled spendthrift trusts. Tennessee and several other states soon followed. The main benefits of the Tennessee Investment Services Act trust (as amended effective July 1, 2013) are that pre-transfer creditors have either two years from the date of the transfer of the property to the trust (or six months from the date of the creditor’s having discovered the transfer) to challenge the transfer or they are barred from bringing a claim. An interesting aspect of Tennessee law is that “discovery” is deemed if the transfer is a public record. Many attorneys have begun recording affidavits of transfers in the applicable counties in order to make the transfers a public record, and thus ensure the shortest statute of limitation possible. Even if an action is filed within the statute of limitations period, it must be shown with clear and convincing evidence that the transfer was for the purpose of defrauding that creditor.

There are other advantages to Tennessee Investment Services Act trusts. They allow for flexible tax planning. Unlike in certain other states, tort claimants are not exemption creditors (i.e. tort claimants would be treated the same as any other creditors for the purposes of the Tennessee act). Tennessee law allows for decanting and virtual representation (I will be covering these topics in future posts, but they allow for methods of fixing certain problems in the trust without court intervention). The Tennessee law creating these trusts, therefore, provides a great deal of protection for assets as well as flexibility for planning. The basic requirements for creating one of these trusts are is that the trust:

  • must be governed by Tennessee law,
  • must be irrevocable,
  • must have a spendthrift clause,
  • must have a qualified trustee, and
  • there must be an executed affidavit.

The qualified trustee must:

  1. be a Tennessee resident or a corporate trustee licensed under Tennessee law, and
  2. have at least some certain duties such as custody of assets, preparing tax returns, or be materially administering the trust.

The grantor/settlor CANNOT be the trustee. The affidavit is required to state that the grantor/settlor had full right and title to transfer the property, that the transfer does not render the grantor/settlor insolvent, that there is no fraud and the assets were obtained lawfully, that there is not litigation or administrative proceedings pending against the grantor/settlor, and that the grantor/settlor isn’t bankrupt.

There are some areas to be cautious about, however. The limited case law has shown that domestic asset protection trusts may have limited or no protection for assets located outside of the state of domicile for the trust. Nonresidents of Tennessee can certainly set up Tennessee Investment Services Act trusts, particularly if the qualified trustee and the property are located/custodied in Tennessee, but great care must be used if property outside of Tennessee is to be added to the trust. The Tennessee Investment Services Trust Act also does not protect against past due child support, past due alimony, and division of alimony. A much longer ten year statute of limitations may also apply in certain cases of bankruptcy.

As a final note, it is generally better to use the domestic asset protection trust law of the state of domicile (provided that said state has such a law) since a recent case out of Utah (regarding a Nevada asset protection trust) has shown that even among states with asset protection trust laws, other states’ laws may have some difficulties in being enforced. Fortunately, Tennessee’s Investment Services Act does have provisions allowing trusts from other states to be transferred to Tennessee.

A decision to enter into any sort of trust is not one to take lightly, as there are real property laws, tax laws, asset protection laws, etc. that must be carefully taken into account, and many of those details exceed the limited scope of this blog post. As always, we strongly recommend seeking the advice of a professional before setting up trusts.

Michael Goode, a Nashville attorney with Stites & Harbison PLLC is a member of the TBA Estate Planning & Probate Section's Executive Council

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Minor Children and IRA/401Ks Beneficiary Designations: Dangers and Concerns

As a parent, one of the most difficult issues that I have had to deal with is what would happen to our young child should anything happen to my wife and I. No one likes to contemplate their own mortality or the idea of not being there to watch their children grow up. Unfortunately, mortality is inescapable, and proper planning is essential. Often people believe that once they have their Will drafted everything will be settled. This is rarely the case.

The first concept to understand is probate versus non probate in terms of assets. Assets owned directly by you, and that do not have a beneficiary designation (or survivorship/tenants in the entirety, etc.), will generally be a part of your probate estate. This means your Will would be able to direct where these assets go. For accounts with beneficiary designations, such as IRAs, 401Ks, life insurance, certain bank accounts (as well as joint with survivorship or pay on death or transfer on death designations), certain financial accounts (with named beneficiaries), and even some real property (joint with survivorship, tenants in the entirety, etc.) might all pass outside of probate. Your Will would have no effect whatsoever on how these non-probate items are distributed. Instead, those non-probate items would be distributed in accordance with the various beneficiary designations (or through survivorship or tenants in the entirety, etc.), regardless of what is written in your Will. Since these items could make up the majority of your estate, it is important to plan properly.

One idea that many people have is to simply name their estate as the beneficiary and therefore have those assets come under control of the Will. However, naming the estate as the beneficiary can be disastrous for qualified plans (IRAs, 401Ks, etc.), as such designations generally have adverse tax consequences and may have adverse asset protection consequences.

What happens if assets go directly to a minor child? Generally, if it is more than a certain amount (as determined by the states, usually about $15,000-$20,000), the parent/guardian would not be able to simply hold the child’s assets, and a conservatorship would have to be obtained. Until the child reaches age 18, the conservator would have to be bonded (which can be expensive), and the court would be involved in determining how the money is spent. Upon reaching age 18, the child would get the full value of the assets. For most families, conservatorships should be avoided through proper planning.

One solution is to have the minor named as beneficiary pursuant to one of the uniform transfers to minor’s acts of the various states. The downside to this designation is that not all qualified plans allow for this designation, and there is little flexibility, as the child will get everything remaining at age 21, which may not be what is desired.

Another solution is to create a trust, and have the trust be the beneficiary of the funds. The trust can be created either as a stand-alone document, or created via the Will as a testamentary trust. Great care should be taken in the creation of this trust.

If the deceased dies after their Required Beginning Date for Minimum Required Distributions (April 1 of the year following the year in which the deceased turned 70 ½) than any Required Minimum Distributions from the qualified plans (IRAs, 401Ks, etc.) would be based upon that decedent’s life expectancy, unless the trust properly sets forth a Designated Beneficiary or Beneficiaries (which would generally be your children). If a proper Designated Beneficiary is set up, then the distributions would be based on the longer of the oldest beneficiary’s life expectancy or the deceased’s life expectancy. It may be beneficial, especially if there is a lot of difference in age between the children, to set up multiple trusts each with a different Designated Beneficiary (i.e. child) so that the stretch-out of the payments isn’t limited to the lifespan of the oldest child. If the deceased dies before their Required Beginning Date and there is no Designated Beneficiary, then the entire balance of the account must be distributed within five years of the date of the deceased’s death, which is a terrible result. The longer the distributions can be stretched out the longer the tax is deferred (and perhaps at a lower rate as well since income taxes are on a graduated scale) and the longer tax free growth is allowed for the funds remaining in the qualified plan.

You would generally have your spouse named as primary beneficiary, and then the trust (or trusts) as contingent beneficiaries. The spouse would have the option of rolling over his or her inherited IRA into their own IRA (which would then provide asset protection once it is rolled over), and the properly drafted trust (which follows all of the rules regarding designating a beneficiary) would provide asset protection to the non-spousal beneficiaries. A recent Supreme Court case stated that inherited IRAs are not asset protected since they are not retirement accounts, and that is why the spousal rollover, and the trust for the contingent beneficiaries, is important from an asset protection standpoint (unless your state already protects inherited IRAs anyway).

The final issue to be careful of in regard to trusts for qualified plans regards accumulation of income. It may be desirable from an asset protection standpoint to accumulate the distributions in the trust. The downside to having distributions accumulate in a trust (rather than distributing annually) is that trusts are taxed at disfavorable rates. Trusts reach their maximum tax bracket at only $12,150 of income. Therefore, how and when to distribute the distributions coming into the trust from the qualified plan must be carefully considered.

As for other assets (other than from qualified plans), generally the trust can either own the asset directly or the trust can be a beneficiary. Depending upon the tax, estate planning, and asset protection objectives, these trusts can be set up in a variety of ways, and as such a qualified attorney should be consulted as to the appropriate structure depending upon the particular facts of the situation.

Hopefully this article provides a good, brief overview of an often overlooked part of estate planning, e.g. the importance of checking all of one’s beneficiary designations and checking all of one’s deeds, account titles, etc. Do not simply assume that the Will can take care of everything, because often a Will might have no effect whatsoever of a great deal of a person’s property.

— Michael Goode is a member of the TBA Estate Planning & Probate Section's Executive Council and council at Stites & Harbison PLLC  in Nashville

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Estate Planning With Partnerships: Important New Considerations

Two recent acts of Congress (including the rather interestingly named Protection of Americans from Tax Hikes Act) created new audit rules for partnerships. Normally one would not think that a change to “audit rules” would impact estate planning. However, many estates have LLCs taxed as partnerships, or even limited partnerships or limited liability partnerships, which are used as family limited partnerships in order to obtain valuation discounts through lack of control and lack of marketability (provided that all of the proper procedures and documentation is followed). Moreover, many estates have revocable trusts that own limited liability companies, which is a common way to avoid the often lengthy process of probate for business assets. Again, these techniques are quite common.

So what are the new audit rules, and how do they impact estate planning? Briefly, starting in 2018 the new audit rules allow for a partnership level determination of deficiencies if the partnership is audited as the default regime. The problem with this determination is that if there are different partners currently than the year under audit, then the current partners could end up being liable for the past deficiency. There also can be issues with allocation, since the IRS won’t undo erroneous allocation and will simply assess the net increase against the partnership. Another problem is that this deficiency will be assessed at the highest tax rates. The tax matters partner is no longer, and instead there is a partnership representative who does not even need to be a partner. It will be important to select a partnership representative since the IRS gets to choose the representative if one is not selected. Due to the possible negative consequences of the new laws, many partnerships will want to opt out (which will keep determinations at the partner level). The issue is whether trustees that own partnership interests on behalf of trusts will be able to opt out.

The new audit rules allow opting out if there are less than 100 K-1s, and the “each of the partners of such partnership is an individual, a C corporation, any foreign entity that would be treated as a C corporation were it domestic, an S corporation [note that there are some additional rules for S Corps], or an estate of a deceased partner.” Unfortunately the new code section does not mention trusts or trustees at all, so it is currently unclear as to whether partnership that have trusts as owners will be able to opt out. I recently attended a tax conference, and the IRS representative on a panel there informally stated that there would likely be regulations regarding grantor trusts and the ability to opt out (the new audit rules do allow the IRS to prescribe similar rules for other partners not listed in the new code section).

What to do now? For partnerships, family limited partnerships, limited partnerships, limited liability partnerships (and limited liability limited partnerships), as well as LLCs taxed as partnerships, that are currently being formed, it would be prudent to include some of the language from the new code in partnership and operating agreements in order to insure later that the entity is in compliance, in case the partners do not return to amend the agreements. For existing partnerships, it makes more sense to wait to amend as more regulations are promulgated by the IRS. Extra caution should be taken regarding trusts (particularly non-grantor trusts) as owners, since it is unclear how or if partnerships with trustee owners will be able to opt out.


Michael Goode is an attorney with Stites & Harbison PLLC in Nashville. He is a member of the TBA Estate Planning & Probate Section Executive Council. 

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ABA Releases Latest Data on Malpractice Claims

The ABA Standing Committee on Lawyers’ Professional Liability has issued its latest in a series of studies on the state of legal malpractice claims in the United States and Canada. “Profile of Legal Malpractice Claims” has tracked legal malpractice trends for 30 years. This one-of-a-kind data analysis provides attorneys and insurance analysts an in-depth look at current trends as well as comparisons to historical data. The committee chair said this year’s report shows a reduction in real estate claims (which likely stemmed from the economic crisis) but a growth in estate, trust and probate claims, which she attributes to rising numbers of retiring baby boomers.

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3 Wills for Heroes Clinics Planned

The TBA Young Lawyers Division has three Wills for Heroes clinics planned during Celebrate Pro Bono Month. The first will take place Oct. 22 from 9 a.m. to 5 p.m. at the Benjamin L. Hooks Public Library in Memphis. The second will take place Oct. 29 from 9 a.m. to noon at the Immanuel Baptist Church in Lebanon. The third will take place Nov. 12 from 9 a.m. to 1 p.m. at Franklin Police Department in downtown Franklin. Volunteers are needed for all events. Get details and contact information for each clinic on the website.

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What to Do with an Estate with Foreign Assets (Even that 'Little' Bank Account in Europe)

This article regards estates of decedents who owned foreign assets and the tax and reporting requirements. Many people are quite shocked to learn about the reporting requirements for foreign bank accounts, in particular. After all, tax is typically being paid in the foreign jurisdiction, or perhaps the foreign bank accounts generate little to no income that is taxable anyway. There are, however, two categories to be concerned with: First, of course is taxation;  second is reporting in and of itself. How does this all relate to estates? Well, if the estate has foreign assets and the proper reports are not made, then the personal representative of the estate could be liable.

One of the main reporting obligations is actually not an IRS form at all, it’s a treasury department Form FinCen 114, commonly called an FBAR (Foreign Bank Account Report). It’s part of the financial crime enforcement network, and if the foreign bank accounts in the aggregate exceed $10,000 at any point during the year (even very briefly) then this report must be electronically filed. The penalties for failure to file can be quite draconian, including willful penalties of 50 percent or more of what is not reported. Again, note that this filing has nothing to do with the amount of tax owed, if any.  If a person has signature authority of foreign financial accounts then there can also be a reporting requirement, even if there is no financial interest in the account.  As such, one should be careful about the accounts that a person has signature authority over.  Similarly, one should be careful about having a power of attorney over one’s parents who have a foreign account, as there could be a reporting requirement.

As for tax reporting, several years ago an act of Congress commonly called FATCA added Form 8938, Statement of Specified Foreign Financial Assets. It is very important that this form is filed, since the statute of limitations never runs if it is not – meaning that there could be a potential tax problem forever.  The IRS recently released regulations requiring this form to be filed by certain domestic entities as well.

Foreign mutual funds held in an estate of a United States citizen or resident are particularly problematic. A United States citizen or resident should never own foreign mutual funds because of the extensive reporting under Form 8621, PFIC shareholder filings and the often very unfavorable tax treatment and the difficulties in obtaining information from often very reluctant foreign financial institutions (FATCA and PFICs are two of the main reasons it’s often hard for United States citizens and residents to open accounts overseas). Although there may be some elections available to alleviate some of the tax burden, foreign financial companies often refuse to supply the needed information.

Of course, some will wonder how the IRS would ever know about these accounts. Well, FATCA requires foreign financial institutions to identify and report US holders of non-US financial accounts. The U.S. already has agreements with most countries for this reporting.

The major forms to be concerned with are set forth in the list below. This is not an exhaustive list and not every form is needed in every circumstance. The form number is listed with its title in parenthesis:

  • FinCen 114 (Foreign Bank Account Report),
  • Form 926 (Transfers to Foreign Corporations),
  • Form 1042 (Payments to Foreign Taxpayers),
  • Form 3520, 3520A (Foreign Trusts),
  • Form 5471 (US Owned Foreign Companies),
  • Form 5472 (Foreign Owned US Companies),
  • Form 8233 (Independent Personal Services by Nonresident),
  • Form 8621 (Passive Foreign Investment Corporations),
  • Form 8833 (Treaty Based Disclosure Form),
  • Form 8840 (Closer Connections Form),
  • Form 8858 (Foreign Disregarded Entities),
  • Form 8865 (Foreign Partnerships),
  • Form 8938 (Specified Foreign Financial Assets),
  • Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding).

Now, back to the subject of personal representative liability. Pursuant to Title 31 U.S.C.§3713(b) any personal representative who pays “any part of a debt of the . . . estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.” Therefore, the personal representative may be liable for taxes, interest and penalties if the distribution leaves the estate unable to pay the government and the personal representative had notice of the government’s claim. In terms of notice “the executor must have knowledge of the debt owed by the estate to the United States or notice of facts that would lead a reasonably prudent person to inquire as to the existence of the debt owed before making the challenged distribution or payment.” United States v. Coppola, 85 F.3d 1015, 1020 (2d Cir.1996). Therefore, there is a duty of inquiry regarding the existence of these obligations, and as such important that the proper reporting is done and taxes paid.

The good news, however, is that much of the reporting, aside from the PFIC reporting of course, is actually not very difficult. Moreover, there are generally tax credits that can be used due to foreign tax paid, meaning that the U.S. tax liability is often quite small. If there are past years that have not been reported, the government currently offers several different programs to settle the tax and reporting obligations for reduced penalties (provided that a person comes forward prior to receiving IRS notice).  Considering the severity of the penalties, proper reporting is obviously very advisable.

Written By Michael Goode, Executive Council Member, TBA Estate Planning & Probate Section

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Read About Estates, Torts, Family Law … and Dodge Ball?

Murfreesboro lawyer Josh McCreary examines last wills and testaments, writing that "in the wake of the 2015 Court of Appeals opinion in In Re: Estate of Morris, the Tennessee legislature has stepped in and amended Tenn. Code Ann. §32-1-104 to lessen the formalities of Wills executed before July 1, 2016." Read in the September Tennessee Bar Journal what this will mean for estate practice. Columnist John Day writes about the two times in the past five years that the statute of limitations applicable to personal injury claims filed on behalf of persons with mental impairments has been changed. Columnists Marlene Eskind Moses and Manuel Benjamin Russ look into finding and defining income available for child support and alimony, and humor columnist Bill Haltom writes about his dubious experiences with junior high sports, particularly Dodge Ball.

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Court Square 2016 Debuts in Columbia

This year’s Court Square CLE series will launch Sept. 7 at First Farmers Bank in Columbia. Nathan Ridley, Jeff Carson and Roger Maness will address legislative updates, estate planning for digital assets and family law in mediation. Learn more or register online.

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Retirement Webinar on Tap for Wednesday

The ABA Retirement Funds Program is hosting a free webinar on the role of self-directed brokerage accounts (SDBA) within retirement plans. The session will be held this Wednesday at noon Central Daylight Time. Topics include: the basics of SDBAs, the benefits of SDBAs, SDBA product details, how SDBAs work within the regulatory environment of ERISA, and trends related to SDBAs in the marketplace.

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Bristol Lawyer Charged with Stealing from Estate

Bristol lawyer Don W. Cooper has been charged with stealing from an estate for which he was serving as executor, according to the Tennessee Bureau of Investigation. The agency said it began investigating the 70-year-old in November 2015 and found that he stole more than $10,000 from an estate in which the beneficiary was supposed to be St. Jude Children’s Research Hospital. Cooper, who was indicted in April for stealing from another estate, turned himself in and was released on a $15,000 bond, the Greeneville Sun reports.

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Message From the Incoming Chair

Dear Section Members,

As the incoming chair of the Estate Planning and Probate Section for the 2016-2017 bar year, I cordially invite you to join us June 15-18 at the annual TBA Convention in Nashville at the Sheraton Music City Hotel. In particular, please make plans to attend the Estate Planning and Probate Section meeting on Friday, June 17, at 10 a.m. in the Cheekwood Room.

We will discuss plans for the upcoming TBA year, including continuing education and networking opportunities. As a Section Member, we welcome your attendance, participation and suggestions as to how we can make the Section stronger and a more valuable resource to you and your practice.

Please reach out to me directly if I can be of assistance. I look forward to serving as your Chair and hope to see you at the TBA Convention in Nashville.

Jeff Carson

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Estate Planning and Probate Section to Meet at TBA Convention

Please make plans to join the TBA Estate Planning and Probate Section for a business meeting that will be held in conjunction with 2016 TBA Convention.  The TBA Estate Planning and Probate Section meeting is scheduled as follows:


Friday, June 17, 2016
10:00 – 11:00 a.m. Central / 11:00 a.m. – 12:00 p.m. Eastern Time


Sheraton Music City Hotel
777 McGavock Pike
Nashville, TN 37214
(615) 885-2200

Room Location - Cheekwood Room

A conference call will be available for those unable to attend in person. The following are the instructions for joining the call:

You will dial in on the following number: 1-855-795-9620

You will then be prompted to enter the following conference ID number, followed by the pound (#) sign: 5722409#

There is still time if you would like to register for TBA Convention. You may register by calling the TBA at (615) 383-7421 or register online at:

2016 TBA Convention

You do not have to be registered for Convention to attend this Section meeting.  We hope to see you there!

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Nursing Home Ejections Raise Legal Questions

The ABA Journal explores the legality of nursing homes ejecting patients who are considered undesirable. The Long-Term Care Ombudsman Program found eviction and discharge complaints have increased about 57 percent since 2000. The article highlights a California case where the family of an ousted patient appealed to the health department and won, yet the nursing home still refused to readmit the patient. 

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Register Today for the 135th Annual TBA Convention

Join us on June 15-18 in Nashville for the 135th Annual Convention! Registration for the 2016 TBA Convention includes:

  • free access to all TBA CLE programming;
  • the Opening Reception;
  • the Bench Bar Programming and Luncheon;
  • Law School and general breakfasts;
  • the Lawyers Luncheon;
  • the Thursday evening Joint (TBA/TLAW/TABL) Reception;
  • the Thursday night dinner and entertainment at the George Jones Museum;
  • and the Friday night Dance Party.

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House Civil Justice Committee Forwards Bills

The House Civil Justice Committee this week sent several bills to the House floor before it closed for the year. Among those are: changes to the conservator law, HB2030 by Rep. Jeremy Faison, R-Cosby; changes to the tolling statute for those persons who “lack capacity” were made with HB1651 by Rep. David Hawk, R-Greenville; and HB2033, also by Rep. Faison, as amended creates civil immunity for those property owners who do not post “no guns allowed” signs.

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Mentors in Estate Planning & Probate Needed

The TBA Mentoring Program is looking for volunteer mentors dealing with estate planning & probate in the Davidson, Williamson, Maury and Rutherford County areas. Mentoring is the most effective way to pass along skills, knowledge and wisdom and it is critical to a new lawyer’s success. There are many new attorneys signed up for this program, but there is a shortage of mentors to match them with. 

To qualify as a mentor, you must have a minimum of eight years of experience with no formal BPR investigation pending or disciplinary action imposed in the last 10 years. For more information on the program, visit:

If you’re interested in signing up, please contact Kate Prince at 615-277-3202.

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Bill on Witness Signatures for Wills Moves to Senate Floor

The Senate Judiciary Committee today passed SB1560 by Sen. Ferrell Haile, R-Gallatin, with an amendment. The bill as amended provides that any will executed prior to July 1 will be considered executed if the witnesses to the will signed a self-proving affidavit incorporated in a will and other existing statuary requirements are met. The bill will go to the Senate floor next. Rep. William Lamberth, R-Cottontown, passed the companion bill, HB1472, on the House floor last week.

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Bill Addressing Witness Signatures Moves Out of Committee

Legislation from Rep. William Lamberth, R-Cottontown, permitting until July 1, 2016 the combined signatures of witnesses and those executing a self-proving affidavit to validate a testators signature moved out of the House Judiciary Committee today. The bill (HB 1472) is intended to address a situation like that addressed in the Court of Appeals case IN RE Estate of Bill Morris.

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News About Section Members

Matthew Buyer recently moved to Pinnacle Financial Partners to open the Memphis Trust Department. In addition, he will continue to serve as an adjunct in the MBA program at Webster University in Millington. He also recently completed 32 years of reserve duty with the Army National Guard.

Jeff Carson of Franklin has been named vice chair of the TBA Estate Planning and Probate Section. He will assume the chairmanship for the 2016-2017 bar year.

Jennifer Exum has recently been named Of Counsel for Chambliss Law in Chattanooga.

Angelia Nystrom of Knoxville has been named Director of Specialty Programs for the University of Tennessee Institute of Agriculture.

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LAET Partners with Attorney to Offer Free Estate Planning

Attorney David Coates, of the Law Offices of David Coates, has partnered with Habitat for Humanity and Legal Aid of East Tennessee to offer free estate planning this Saturday to every Habitat for Humanity of Greater Chattanooga Area homeowner in the Chattanooga area. “Now that these families are homeowners, it is such a blessing to see them able to meet with a lawyer to help protect their homes,” Cheryl Marsh, Director of Family Services, said. The clinic, along with a free legal clinic, will be held in the Chattanooga Housing Authority’s multipurpose room located at 801 N. Holtzclaw Ave.

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Pending Legislation for Digital Assets

By Donald Farinato, Executive Council Member, TBA Estate Planning and Probate Section

January brings the commencement of a new legislative session, and with it, the continued contemplation of Senate Bill 0326 (SB0326), which is legislation carried over from the last session. If enacted, SB0326 would provide guidance and authority for executors, conservators and other fiduciaries regarding access to digital assets of a deceased or incapacitated individual. 

The National Conference of Commissioners on Uniform State Laws (NCCUSL) promulgated the Uniform Fiduciary Access to Digital Assets Act (UFADAA) in final form during the summer of 2014. UFADAA proposed a uniform system for all fiduciaries, including personal representatives, trustees, conservators and attorneys-in-fact, to access digital assets.On Feb. 3, 2015, SB0326 introduced Tennessee’s version of UFADAA (TUFADAA). Initially, UFADAA was well-received by various states nationwide, and it appeared that Tennessee fiduciaries would be able to rely upon TUFADAA.  However, concerns from various sectors of the technology industry stalled the initial nationwide momentum, and various states postponed pending legislation. In Tennessee, on April 8, 2015, action on TUFADAA was deferred to Jan. 12, 2016. 

In response to the concerns raised by various technology companies, late in 2015 NCCUSL developed the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) to replace UFADAA. An amendment to SB0326 was added to integrate the changes included in RUFADAA in the Tennessee bill. SB0326 continues to be contemplated, and if enacted, would provide a framework for individuals to plan for their digital assets upon their incapacity or death. 

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Sensitizing Clients About Digital Assets

By Donald Farinato, Executive Council Member, TBA Estate Planning and Probate Section

Most of my clients have some type of “digital life” through which they chronicle their vacations on Facebook, capture pictures of a child’s soccer game on their cell phone, automated bill paying through online banking, and otherwise utilize their digital assets. While digital assets are important to many clients, few undertake efforts to protect these assets. Without proper planning, digital assets are subject to loss. 

Digital assets are those assets that exist only in electronic form. Examples include PayPal accounts, LinkedIn profiles and emails. Generally speaking, it is easy for a client to utilize and access digital assets.  However, it can be problematic for others to access a client’s digital assets should the client die or become incapacitated. There are a number of barriers to others accessing a client’s digital assets, including federal legislation, such as the Stored Communications Act, and Tennessee statutes, such as the Tennessee Personal and Commercial Computer Act of 2003. In addition to both federal and state laws, terms of service agreements, which govern the terms of use of electronic accounts, can restrict access to digital assets. 

Because of the potential pitfalls, I endeavor to inform clients about digital assets early in the estate planning process. I want clients to think about their digital assets in terms of three categories: “practical” digital assets, “sentimental” digital assets and “valuable” digital assets. 

“Practical” digital assets include investment accounts solely with an online presence and automated bill paying services.  Many of my clients utilize these types of services, and their loved ones would be inconvenienced if precluded from accessing the accounts.

“Sentimental” digital assets include pictures uploaded on Shutterfly and tweets posted on a Twitter account.  Planning for the protection of this type of digital asset can be important since the electronic account may contain the only pictures of a special event, such as a child’s birthday party.

“Valuable” digital assets tend to be less common and can include well-developed blogs and valuable domain names. For example, a client may have started an online community to discuss Corvettes purely as a hobby, but after the community became quite active, companies selling specialty automotive parts were willing to pay for advertising in the online community. Without proper planning, an otherwise valuable asset could be lost or experience a significant decrease in value. 

I utilize an Estate Planning Questionnaire (EPQ) that I ask all estate planning clients to complete. The EPQ requests that the client provide standard estate planning information, such as financial information and family relationships. About a year ago, I added a section dealing with digital assets on my EPQ, asking the following three questions:

1.  Do you conduct any important transactions electronically (e.g.: paying utilities, monitoring investments)?  If so, please provide additional details.

2.  Do you have personal electronic accounts that are important to you (e.g.: Facebook, Twitter, pictures stored on cell phone)?  If so, please provide additional details.

3.  Do you own or have an interest in any digital assets that are valuable (e.g.: domain names, blogs)?  If so, please provide additional details.

The three questions on the EPQ help sensitize clients about the need to consider digital assets as part of their planning. Because there are not yet sufficient laws in place to provide for the handling of digital assets upon death or incapacity, clients are best served by contemplating early on how they want their digital assets to be handled. Potential decisions include whether to engage in self-help, such as saving pictures from a Facebook account to a computer to make sure beneficiaries have unfettered access. 

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Vanderbilt Law Professor Elected to Estate Planning Hall of Fame

Jeffrey Schoenblum, Centennial Professor of Law at Vanderbilt, has been elected to the Estate Planning Hall of Fame. The award is given annually by the National Association of Estate Planners & Councils in recognition of significant and outstanding lifetime achievements and contributions to the practice and profession of estate planning. Schoenblum has taught trust and estate law at Vanderbilt Law School since 1977.

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Columns: Evolving Legal Markets, Robin Williams, Banking and Fred Thompson

In this issue of the Tennessee Bar Journal, TBA President Bill Harbison writes about the "disruptive changes" that are occurring in the delivery of legal services. Columnist Eddy Smith details the genius of Robin Williams' estate plan and Kathryn Reed Edge covers banking and the U.S. Supreme Court. In his column, Bill Haltom remembers Sen. Fred Thompson and his tremendous contributions to the law and history.

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Memphis City Employees Suing Over Pension Cuts

Unions representing Memphis city employees filed a lawsuit asking a judge to stop planned pension cuts for newer employees, WREG reports. "The City Council just arbitrarily selected 7 1/2 years and there was basis for that decision other than just pick a number," Danny Todd with the International Firefighters Association said. The pension cuts are expected to take place next July.

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