A Tennessee Investment Services Trust is an irrevocable, self-settled asset protection trust created under the Tennessee Investment Services Act of 2007 that lets you shield assets from most future creditors while remaining a beneficiary of the trust yourself. The trust must be governed by Tennessee law, administered by a qualified trustee with a real Tennessee presence, and contain a spendthrift clause. In exchange, Tennessee gives creditors a short eighteen-month window to challenge transfers into the trust and requires them to meet a high burden of proof if they try.
What Makes a Trust Qualify
Tennessee Code 35-16-102 sets three structural requirements, and all three must be present. Miss one and the arrangement is just a trust, not an investment services trust, and none of the statute’s creditor protections apply.1Justia. Tennessee Code 35-16-102 – Chapter Definitions
- Tennessee governing law. The trust instrument has to expressly adopt Tennessee law for its validity, construction, and administration.
- Irrevocability. Once signed and funded, you cannot unilaterally revoke, amend, or terminate the trust.
- Spendthrift clause. The trust must prohibit any beneficiary from voluntarily or involuntarily transferring, pledging, or mortgaging their interest before the trustee actually distributes it.
Who Can Serve as Trustee
You cannot be your own trustee. The statute disqualifies the person who creates and funds the trust from managing it, and the person who does manage it has to meet both a status test and a presence test.1Justia. Tennessee Code 35-16-102 – Chapter Definitions
An individual trustee must be a Tennessee resident. A corporate trustee (a bank or trust company) must be authorized under Tennessee law and supervised by the Tennessee Department of Financial Institutions, the FDIC, the Comptroller of the Currency, or the Office of Thrift Supervision, or their successors.
Beyond status, the trustee has to do real work in Tennessee: maintain custody of some or all trust assets, keep the trust records, prepare or arrange for income tax returns, or otherwise materially participate in administering the trust. This operational anchor matters. If a trustee is a Tennessee resident on paper but handles everything from another state, a creditor has a much stronger argument that Tennessee law should not control.
The trustee owes a fiduciary duty to all beneficiaries and must follow the prudent investor rule, judged on the facts known when the decision was made rather than with hindsight.2Justia. Tennessee Code 35-14-103 – Prudent Investor Rule
What You Keep as the Settlor
The practical appeal of a TIST is that the list of powers and interests you can retain is unusually generous. Under Section 35-16-111, the trust is not treated as revocable just because you can:3Justia. Tennessee Code 35-16-111 – Revocability of Trusts
- Receive distributions of principal at the qualified trustee’s discretion. The trustee is presumed to have that discretion unless the trust document expressly denies it.
- Receive income or principal to cover income taxes owed on trust income, if the trust instrument allows it.
- Direct that trust assets be used after your death to pay outstanding debts, estate administration expenses, or estate and inheritance taxes.
The protection depends on the trustee controlling the timing and amount of distributions. A trust that lets you demand money whenever you want does not qualify. A trust where the trustee has genuine discretion does, even if you receive distributions regularly in practice.
How Creditor Protection Works
The core promise is this: once assets are in the trust, a creditor cannot reach them unless they prove by clear and convincing evidence that you made the transfer specifically to defraud that creditor. Clear and convincing is a much higher bar than the “more likely than not” standard that governs most civil cases.4Justia. Tennessee Code 35-16-104 – Restrictions on Actions, Remedies and Claims
Creditors also face hard time limits. If you already owed the debt when you made the transfer, that creditor has to sue within the later of eighteen months after the transfer or six months after they discovered (or reasonably should have discovered) it. If the claim arose after the transfer, the creditor gets eighteen months from the transfer date and nothing more. When those windows close, the claim is extinguished regardless of its merits.
Distributions out of the trust can themselves be attacked as fraudulent transfers under Tennessee’s version of the Uniform Fraudulent Transfer Act, which looks at factors like whether the distribution went to an insider, whether the trust became insolvent as a result, and whether the distribution was concealed.5Justia. Tennessee Code 66-3-305 – Transfers Fraudulent as to Present and Future Creditors Keeping distributions tied to the trust’s stated purposes (commonly health, education, maintenance, and support) reduces that risk.
Where the Protection Ends
A TIST is not a universal shield. Two categories of claim get through the statute’s defenses, and anyone considering this planning should understand both before funding.
Family-Law Obligations
Tennessee carves out an exception for certain family-law debts. The eighteen-month limit and the clear and convincing evidence standard do not apply to claims for past due child support, past due alimony in solido, past due spousal support or alimony, or a court-ordered division of marital property.4Justia. Tennessee Code 35-16-104 – Restrictions on Actions, Remedies and Claims
Even these exception creditors have to clear hurdles. They can only reach trust assets after obtaining a final, non-appealable court order confirming the debt is past due, and after the court finds the creditor has made reasonable attempts to collect from your other assets or that doing so would be futile.
Federal Bankruptcy
Tennessee’s eighteen-month window does not bind a federal bankruptcy trustee. Under Section 548(e) of the Bankruptcy Code, a trustee can claw back any transfer to a self-settled trust made within ten years before the bankruptcy filing if the transfer was made with actual intent to defraud any creditor.6Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations The state statute’s time limits do not override this.
This is where many people’s understanding of domestic asset protection trusts breaks down. The state statute protects you from creditors suing in state court after eighteen months. But if you file for bankruptcy, or a creditor forces you into it, the federal ten-year rule controls. A TIST funded in response to a foreseeable lawsuit is especially exposed. The planning works best when the trust is funded well in advance of any specific financial trouble.
The Qualified Affidavit at Funding
Every time you transfer assets into the trust, you have to sign a sworn affidavit covering seven specific representations. This is not a formality that can be backfilled later, and a new affidavit is required for each funding event if you contribute assets in stages.
The affidavit must confirm that you have full authority to transfer the assets, that the transfer will not render you insolvent, that you do not intend to defraud any creditor, that you have no pending or threatened court actions (or disclose them in an attachment), that you are not involved in any administrative proceedings (same disclosure rule), that you are not contemplating a bankruptcy filing, and that the assets were not derived from unlawful activities.7Justia. Tennessee Code 35-16-103 – Qualified Affidavit Requirements
Because the affidavit is sworn, a false statement is an independent legal problem on top of the damage it does to the trust’s creditor protection.
Tax Treatment
A TIST where you remain a discretionary beneficiary is almost always a grantor trust for federal income tax purposes under Sections 671 through 679 of the Internal Revenue Code. All trust income, deductions, and credits flow through to your personal return, and the trust does not file its own income tax return as a separately taxable entity.8Office of the Law Revision Counsel. 26 USC 671 – Trust Income, Deductions, and Credits Attributable to Grantors and Others as Substantial Owners
In planning terms, grantor treatment is usually a feature. Trust assets compound without bearing their own income tax burden because you pay the tax personally. Section 35-16-111 explicitly allows the trust to reimburse you for taxes on trust income without the trust being treated as revocable.
Tennessee itself does not impose a state income tax, so trust income is not subject to state tax for nonresident beneficiaries of a Tennessee-sited trust. For settlors living in high-tax states who can establish a valid Tennessee nexus through the qualified trustee, that can produce meaningful state tax savings over the life of the trust.
Gift tax is a separate question. Depending on the control and beneficial interests you retain, your transfer into the trust may be an incomplete gift (no gift tax now, but the assets may remain in your taxable estate) or a completed gift (uses lifetime exemption, assets should be out of the estate). The wrong structure can produce the worst of both: gift tax at funding and estate tax at death. This classification needs to be worked out at the drafting stage.
What It Costs to Set Up
Attorney fees for drafting the trust, preparing the qualified affidavit, and handling asset transfers typically run several thousand dollars, with the range depending on the complexity of your estate. Real estate transfers also carry recording fees in each county where property sits.
Corporate trustee fees commonly start at 0.50% to 0.75% of trust assets annually, often with a minimum annual fee of $3,000 to $5,000, plus a separate onboarding fee for the initial review of assets, title confirmation, and administrative setup. These costs are the price of having a qualified trustee with real Tennessee operations, which the statute makes non-negotiable. An individual Tennessee-resident trustee may charge less but typically lacks the institutional infrastructure that makes a corporate trustee harder to challenge in court.