Parents of adult children whom they plan to bequeath considerable assets are often concerned that those assets will only go to pay off their child’s debts. There are trusts available that can help shield assets from creditors. However, they don’t always guarantee that a creditor can’t get them.
Tennessee is among the states that allow domestic asset protection trusts (DAPTs). The state’s version of this trust is called a Tennessee Investment Services Trust (TIST).
A TIST is an irrevocable trust that is administered by a designated trustee who makes distributions to the beneficiary – typically based on the instructions provided by the grantor of the trust. These trusts provide some protection from creditors – however, only under specific circumstances.
When can a creditor claim assets in a TIST?
While the law that created TISTs is nearly 20 years old, there were some revisions in the law five years ago that provide greater protection from creditors. For example, if the beneficiary already owed the creditor money when the assets were placed in the trust, the creditor has either 18 months to make a claim on those assets or six months after they learned (or should have learned) about the trust – whichever is the longer period.
If a debt is incurred after the trust is funded, then the creditor simply has 18 months to discover those assets and claim their share. The six-month option doesn’t apply.
It should be noted that in either case, if a creditor can prove that assets were intentionally placed in a TIST to defraud them, those timelines don’t apply. That can be a difficult thing for a creditor to prove.
A TIST can potentially help prevent a spouse from seeking part of it in a divorce since the assets not distributed would likely solely belong to the beneficiary. However, under the law, they can still claim spousal or child support that is owed to them.
Tennessee has some of the most advantageous estate and trust laws in the country. To help ensure that you’re using the tools that are most advantageous to you and your family, it helps to have experienced estate planning guidance.