In our ongoing effort to share with the country the wonderful business climate and economically friendly climate in Tennessee I wanted to sahre an article from several local business periodicals as to why Tennessee has continued to see growth in the real estate market despite all of the negative regional reports from around the country.
From The Nashville Business Journal, The Tennessean and Insurors Digest:
Tennessee has liberalized its trust law to make things easier for those who have millions or hundreds of thousands of dollars to protect. For the first time, people can set up trusts in Tennessee to benefit themselves and still try to protect assets from creditors or lawsuits, a nice deal for people who have a lot of assets and a lot of liability, such as medical doctors or business owners. Previously in Tennessee, someone setting up a trust to name himself as a beneficiary couldn't also enjoy asset protection from creditors. "For almost any professional, it's so easy to get sued these days,'' said Bryan Howard, a Nashville estate lawyer with Howard Mobley & Havens who helped write the Tennessee law. He said he completed seven trusts last month under the new law, getting a mix of doctors and business owners as clients.
Here are the basics
Trusts - in which a trustee manages money or assets for the benefit of others - are set up frequently to preserve money for future generations. Now, Tennessee has joined a host of other states vying for trust dollars by expanding the uses of a trust.
Eleven states allow asset protection for trusts in which the person setting up the trust can name himself as beneficiary, getting, for example, a regular stream of income from the trust's investments.
Tennessee's new law, which went into effect in July, also allows for trusts that effectively last 360 years instead of 90 years - joining about 20 other states that have this provision. The provision allows those with wealth to pass it on to multiple generations of their families without each generation facing estate taxes. Other taxes apply to trust income, however, varying from state to state.
"You can basically take care of 10 generations," said Derrick Jones, managing director of wealth management services at Nashville Bank & Trust. "This is a way to give away assets but still have some control."
Twenty-two states now allow long-term trusts designed to benefit multiple generations, according to Robert H. Sitkoff, a professor of law at Harvard Law School who specializes in trusts.Sitkoff and Max Schanzenbach from Northwestern University studied assets in financial institutions regulated by the federal government between 1986 and 2003 and found that states that had long-term trusts attracted about $6 billion more than states that did not.
The average state overall had almost $200 billion in trusts in 2003.
"If we want people to put their trust money in Tennessee as opposed to those 20 other states, you have to create a means to do that,'' said Tim Amos, the senior vice president and general counsel for the Tennessee Bankers Association.
Banks like new law
Financial institutions such as banks and trust companies are most likely to benefit from the new state law, because they can get income that otherwise may have fled to other states with more liberal laws. A Tennessean, for instance, could set up a trust in Delaware, Alaska or South Dakota and the money would be lost to Tennessee financial institutions.
"Our hope is that it will attract assets from other states,'' said Joseph Presley, president and chief executive officer of Cumberland Trust & Investment Co., which has offices in Nashville and Memphis. The new trust law won't be good for everyone. It typically costs a few thousand dollars to set up a trust, so some wealth is needed to justify the process.
The new trusts also are irrevocable.
In addition, the asset protection clause won't protect people from current creditors or those with pending lawsuits.
The asset protection clause doesn't apply until four years after the asset has been transferred to the trust.
Another thing to keep in mind is that the asset protection guarantees of such trusts have not been thoroughly tested in court.
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