Tennessee introduces Innovative Family Partnership Structure

In the world of estate planning and wealth management, staying ahead of the curve is a must for both families and financial advisors. Tennessee, long known for its progressive approach to trust laws, has once again demonstrated its commitment to innovation with a series of groundbreaking legislative updates.

The Volunteer State has recently introduced a new "family partnership" structure and made significant enhancements to its trust laws, solidifying its position as a leader in the field of wealth preservation and transfer. These changes, which came into effect on July 1, 2024, are poised to reshape the way families and advisors approach estate planning, potentially setting a new standard for other states to follow.

At the heart of these updates is the recognition that modern families require flexible, efficient structures to manage and transfer wealth across generations. The new family partnership structure, in particular, represents a novel approach to balancing the needs of family-owned businesses with the complex realities of estate planning in the 21st century.

These updates not only affect Tennessee residents but also have the potential to attract out-of-state wealth planners and families seeking more advantageous jurisdictions for their trust and estate needs. The ripple effects of Tennessee's bold move could reshape the national landscape of trust and partnership law in the coming years.

Let's explore the key elements of these changes and what they mean for families, businesses, and financial advisors navigating the complex world of wealth management and estate planning.

Key Takeaways:

• Tennessee creates new "family partnership" structure under Revised Uniform Partnership Act

• Recent legislation enhances Tennessee Trust Code, maintaining state's status as top trust jurisdiction

• Changes include streamlined process for appointing trust advisors and creating directed trusts

• Updates clarify perpetuities rules for out-of-state trusts moved to Tennessee

In a move that could set a precedent for other states, Tennessee has introduced a groundbreaking "family partnership" structure as part of its Revised Uniform Partnership Act. This innovative development, along with several updates to the Tennessee Trust Code, reinforces the state's position as a leading jurisdiction for trust creation and administration.

The New Family Partnership Structure

The Tennessee Bar Association's recent trust legislation establishes the "family partnership" as a distinct form of general partnership. This new entity type offers several advantages:

1. Requires a written partnership agreement established or amended after July 1, 2024

2. Family members must own at least 50% of the partnership's profits or capital interests

3. Designed to avoid certain obligations associated with registered business entities

4. Allows for valuation discounts commonly used in estate planning

Key Updates to Tennessee Trust Laws

Governor Bill Lee signed Public Chapter 695 into law in April 2024, with the legislation taking effect on July 1, 2024. The new law introduces several important changes:

1. Streamlined Process for Appointing Trust Advisors

The updated Tennessee Trust Code (Tenn. Code Ann. § 35-15-716) expands the authority of trustee appointers. They can now:

• Appoint trust advisors and protectors

• Allocate various powers among trustees

• Direct or prevent certain trustee actions

2. Clarification on Perpetuities Rules

For out-of-state trusts transferred to Tennessee:

• Without a state jurisdiction provision: The term is the shortest of 360 years, the period stated in the trust instrument, or the period under foreign law

• With a state jurisdiction provision: The term is the shorter of the period stated in the trust or the period under the specified state's law

3. Enhanced Virtual Representation Statutes

Updates to Tenn. Code Ann. § 35-15-303 include:

• Clearer priority rules for representing minor or unborn descendants

• Expanded list of persons who can represent incapacitated adults

4. Private Trust Company Regulations

The legislation clarifies that changes in trusteeship, including adding co-trustees, do not constitute a change in control under banking regulations.

Implications for Estate Planning and Wealth Management

These legislative updates are expected to attract wealth planners nationwide, offering:

• Greater flexibility in trust administration

• Enhanced options for family-owned businesses

• Potential tax advantages through the new family partnership structure

Tennessee's forward-thinking approach to trust and partnership law demonstrates its commitment to remaining a top jurisdiction for wealth management and estate planning. As other states observe the impact of these changes, we may see similar innovations across the country.

For families and advisors looking to discuss some of these points in more detail, please feel free to shoot me an email.