Tennessee Trust Laws: Types, Rules, and What Each Trust Does

Tennessee's trust laws are among the most progressive in the country. The state has positioned itself as a trust-friendly jurisdiction by offering asset protection trusts with one of the shortest creditor challenge windows in the nation, community property trusts for capital gains elimination, and a regulatory environment with no state income tax on trust earnings.

Here is what Tennessee law actually provides, which trust types serve which purposes, and where the limits are.

Tennessee Uniform Trust Code

Tennessee adopted the Uniform Trust Code (UTC) under Title 35, Chapter 15 of the Tennessee Code Annotated. This governs the creation, administration, modification, and termination of trusts in the state. Key provisions include:

• Trust creation requires a settlor with capacity, a definite beneficiary (or a valid charitable purpose), a trustee, and property transferred into the trust
• Revocable trusts can be amended or revoked by the settlor at any time during their lifetime
• Irrevocable trusts cannot be modified or revoked without court approval or the consent of all beneficiaries (with some statutory exceptions)
• Trustee duties include loyalty, impartiality, prudent investment, and clear accounting to beneficiaries

Types of Trusts Available in Tennessee

Revocable Living Trust

The most common estate planning trust. You transfer assets into the trust, serve as your own trustee during your lifetime, and name a successor trustee to manage and distribute assets after your death.

Primary purpose: Probate avoidance. Assets in the trust do not go through probate court. This is particularly valuable in Tennessee because the state does not recognize transfer-on-death deeds for real property — a living trust is one of the few ways to transfer real estate outside of probate without joint titling.

Tax treatment: A revocable trust is invisible for tax purposes during your lifetime. You report trust income on your personal return. At death, the trust becomes irrevocable and gets its own tax ID (EIN).

Limitations: A revocable trust provides zero creditor protection during your lifetime. You retain full control, so creditors can reach trust assets just as they can reach assets in your name.

Tennessee Community Property Trust

Created under the Tennessee Community Property Trust Act of 2010 (T.C.A. Section 35-17-101 et seq.), this trust allows married couples to convert their assets into community property, even though Tennessee is a common-law property state.

Primary purpose: Double step-up in cost basis under IRC Section 1014(b)(6). When the first spouse dies, both halves of the community property receive a stepped-up basis to current fair market value — not just the deceased spouse's half. This can eliminate hundreds of thousands of dollars in capital gains taxes for the surviving spouse.

Requirements: At least one qualified Tennessee trustee (resident individual or licensed trust company), written consent of both spouses, and a mandatory ALL CAPS notice about divorce implications.

Tennessee Investment Services Trust (TIST)

Authorized under the Tennessee Investment Services Act of 2007 (TISA), this is a self-settled domestic asset protection trust. Tennessee is one of roughly 20 states that allows you to create an irrevocable trust, transfer assets into it, remain a discretionary beneficiary, and still shield those assets from future creditors.

Key features:

• 18-month statute of limitations for creditor challenges — tied with Ohio for the shortest in the nation
• Requires at least one qualified Tennessee trustee
• Requires an affidavit of solvency at the time of transfer (you cannot be insolvent when you fund the trust)
• The trust must be irrevocable
• Tennessee courts retain jurisdiction over trust disputes

Who it serves: High-net-worth individuals, professionals in high-liability fields (physicians, real estate developers, business owners), and out-of-state residents seeking Tennessee's favorable trust laws. TISTs are not appropriate for typical estate planning — they require giving up control of assets and incurring ongoing trustee fees.

Irrevocable Life Insurance Trust (ILIT)

An irrevocable trust that owns life insurance policies. By removing the policies from your estate, the death benefit is excluded from your taxable estate for federal estate tax purposes.

Relevant when: Your estate approaches or exceeds the federal estate tax exemption ($13.99 million per person in 2025). Tennessee has no state estate tax, so the ILIT's benefit is purely federal tax reduction.

Special Needs Trust

A trust designed to hold assets for a beneficiary with disabilities without disqualifying them from means-tested government benefits like SSI and TennCare. Tennessee law recognizes both first-party special needs trusts (funded with the beneficiary's own assets, with a Medicaid payback provision) and third-party trusts (funded by family members, with no payback requirement).

Tennessee's Tax Advantages for Trusts

Tennessee charges no state income tax — period. This means:

• Trust income accumulated in a Tennessee trust is not subject to state income tax
• Out-of-state residents who create Tennessee trusts with a Tennessee trustee can potentially avoid their home state's trust income tax (subject to the home state's rules on trust taxation)
• No state capital gains tax on trust asset sales

This tax environment is a primary reason Tennessee has become a popular jurisdiction for trust siting, even for non-residents.

Trustee Selection Rules

Tennessee allows both individual and corporate trustees. For certain trust types, the law imposes specific requirements:

A "qualified Tennessee trustee" means a Tennessee resident individual, or a bank or trust company authorized to act as a trustee in Tennessee.

Common Mistakes with Tennessee Trusts

Creating a trust but not funding it. A revocable living trust only controls assets titled in its name. If you create the trust but never transfer your home, accounts, and investments into it, those assets still go through probate at your death.

Assuming a revocable trust provides asset protection. It does not. Only irrevocable trusts like TISTs provide creditor protection, and only for assets you permanently transfer out of your control.

Ignoring the ongoing administration. Trusts require maintenance — new assets must be retitled into the trust, and irrevocable trusts require annual tax filings (Form 1041) if they generate more than $600 in gross income.

For a practical starting point on which trust structures fit your Tennessee estate plan, the Tennessee Basic Estate Planning Kit covers the core documents and titling strategies that work alongside or instead of a trust, depending on your situation.

See more Tennessee guides →