How to Create a Living Trust in Tennessee

A living trust can help Tennessee residents manage property during their lifetime and determine how certain assets will be distributed after death. Assets properly transferred to a revocable living trust can generally avoid probate, while a successor trustee can provide continuity if the person who created the trust becomes incapacitated or dies. However, creating the trust document is only part of the process because appropriate assets also need to be properly transferred into it.

Consider working with a financial advisor and estate planning attorney when deciding how a trust may fit into your broader financial and estate plan.

Creating a Living Trust in Tennessee

Creating a living trust generally involves deciding how the trust should operate, preparing the trust documents and transferring appropriate property into the trust. The exact process can depend on your assets, family circumstances and estate planning goals. Here are six basic steps to consider:

1. Identify which assets should go into the trust: Real estate, taxable investment accounts, bank accounts, certain business interests and personal property may potentially be transferred to a living trust. Retirement accounts such as 401(k) plans and IRAs are generally not retitled in the name of a living trust during the account owner’s lifetime. Instead, these accounts typically retain their existing ownership and pass according to beneficiary designations.
2. Choose the appropriate type of living trust: A revocable living trust generally allows the person creating it to retain control and amend or revoke the trust. An irrevocable trust generally offers much less flexibility. Married couples can consider joint or separate trusts depending on how their property is owned and their estate planning objectives. Tennessee also recognizes certain specialized trust arrangements, but the appropriate structure depends on individual circumstances.
3. Choose your trustee: The trustee manages the property held in the trust. With a typical revocable living trust, you can generally serve as your own trustee. Married couples may also serve as co-trustees in some arrangements. It’s also important to name a successor trustee who can take over when the initial trustee dies, becomes incapacitated or is otherwise unable to serve.
4. Create a trust agreement: The trust document establishes who will serve as trustee, identifies beneficiaries and provides instructions for managing and distributing trust property. An estate planning attorney can help prepare the trust and coordinate it with other estate planning documents.
5. Properly execute the trust and related documents: The formalities required can depend on the trust and the property involved. Documents used to transfer assets, particularly real estate, can have their own execution and recording requirements.
6. Fund your trust: Signing the trust agreement does not automatically transfer all of your property into it. Funding generally involves transferring ownership of appropriate assets to the trust. For example, real estate may require a new deed, while banks and brokerage firms may have their own procedures for retitling accounts. Personal property may require other documentation.

Funding is an important part of establishing a living trust. Property that remains outside the trust generally won’t avoid probate merely because a trust document exists.

What Is a Living Trust?

A living trust, also known as an inter vivos trust, is a legal arrangement created during a person’s lifetime to hold and manage property for one or more beneficiaries. The person creating the trust is generally known as the settlor or grantor, while the trustee is responsible for managing trust property according to its terms.

With a typical revocable living trust, the grantor can also serve as trustee and continue managing property transferred to the trust. A successor trustee can be named to take over if the original trustee becomes incapacitated, dies or is otherwise unable to serve.

Living trusts can be revocable or irrevocable. A revocable trust generally allows the grantor to amend or revoke the arrangement and retain substantial control over the trust property. An irrevocable trust generally provides less flexibility, although whether and how it can be changed depends on the trust terms and applicable law.

The tax consequences also depend on how the trust is structured. A typical revocable living trust is generally treated as a grantor trust for federal income tax purposes, meaning the grantor typically continues to report the trust’s income. Irrevocable trusts can have different tax treatment depending on whether they are classified as grantor or nongrantor trusts and how income is distributed.

One common reason for establishing a living trust is to allow property properly transferred to it to avoid probate. A trust can also establish instructions for managing assets during incapacity and distributing property to beneficiaries after the grantor’s death.

How Much Does It Cost to Create a Living Trust in Tennessee?

The cost of creating a living trust in Tennessee can vary depending on the complexity of the estate, the types of assets involved and whether you use an estate planning attorney or an online service.

Working with an attorney generally costs more than preparing documents yourself, but legal assistance may be particularly useful when an estate includes real estate, business interests, blended families, beneficiaries with special needs or complicated distribution instructions. Fees can also depend on whether the estate planning package includes other documents, such as a pour-over will, power of attorney or advance healthcare directive.

Creating the trust document may not be the only expense. Funding the trust can involve preparing and recording deeds, retitling eligible financial accounts and completing other transfer documents. Professional or corporate trustees may also charge ongoing fees for administering a trust.

Before hiring an attorney, you can ask whether fees are charged at a flat or hourly rate and whether funding assistance, deed preparation and related estate planning documents are included. Comparing the total cost with the potential benefits of the trust can help determine whether creating one makes sense for your estate.

Why Get a Living Trust in Tennessee?

One reason to consider a living trust in Tennessee is to allow certain property to pass outside the ordinary probate process. Assets properly transferred to the trust can generally continue to be managed by the trustee and distributed according to the trust’s terms after the grantor’s death.

However, creating a trust does not automatically allow every asset in an estate to avoid probate. Property generally needs to be properly transferred to the trust during the grantor’s lifetime or pass through another non-probate mechanism. Assets remaining solely in the deceased person’s name may still require probate administration.

A revocable living trust can also provide continuity in the event of incapacity. If the grantor is no longer able to manage trust property, a properly designated successor trustee may be able to take over management according to the trust’s terms.

Trusts can also provide additional control over inheritances. For example, rather than distributing an inheritance outright when the grantor dies, a trust can establish rules for when and how beneficiaries receive assets. This may be useful when providing for minor children, beneficiaries with special circumstances or someone who may benefit from having an inheritance managed over time.

Owning real estate in multiple states can provide another reason to consider a trust. Properly transferring out-of-state real estate to a trust may help reduce the need for separate probate proceedings involving that property, although the applicable rules depend on the states involved.

Living trusts also involve costs and administrative responsibilities, so avoiding probate alone does not necessarily make a trust appropriate for every estate.

Who Should Get a Living Trust in Tennessee?

A living trust may be worth considering for Tennessee residents who want certain assets to avoid probate, provide for continued management of property during incapacity or establish more detailed instructions for beneficiaries.

A trust may be particularly useful for someone who owns real estate in multiple states, has substantial or complex assets, wants to establish ongoing management of an inheritance or has beneficiaries who may not be prepared to receive property outright. A properly structured trust may also be useful when planning for a beneficiary with a disability, although special needs planning can involve additional rules and should generally be coordinated with an attorney.

However, a living trust isn’t necessary for every Tennessee resident. Estate size alone doesn’t determine whether creating one makes sense. How property is titled, whether assets already have beneficiary designations, family circumstances, the location of real estate and incapacity-planning needs can all affect the potential value of a trust.

Tennessee also provides simplified procedures for certain smaller estates, which may reduce the potential probate-related benefit of establishing a living trust solely to avoid probate. Eligibility for simplified administration depends on applicable Tennessee law and the circumstances of the estate.

Living trusts also require proper funding and ongoing attention. Someone considering a trust should weigh those costs and administrative requirements against the potential benefits for probate, incapacity planning and beneficiary distributions.

Irrevocable trusts serve different purposes from typical revocable living trusts and aren’t limited to any particular level of wealth. Because they can involve significant legal, tax and control considerations, whether an irrevocable trust is appropriate depends on the specific planning objective and trust structure.

Living Trusts vs. Wills

Living trusts and wills can both determine how property is handled after death, but they operate differently. A will generally takes effect at death and directs the disposition of probate property, while a living trust is created during the grantor’s lifetime and can hold and manage property before and after death.

The two documents can also work together. Someone with a living trust may still use a pour-over will to direct certain property remaining outside the trust into it after death, although property passing through the will may still be subject to probate. A will can also nominate guardians for minor children and name an executor to administer the probate estate.

Here’s how some of their primary functions compare:

A living trust does not replace every function of a will, which is why an estate plan may include both documents.

Living Trusts and Taxes in Tennessee

Tennessee does not currently impose an inheritance tax on estates of people who die in 2016 or later. However, federal estate tax can still apply to larger estates.

For people who die in 2026, the federal basic estate and gift tax exclusion is $15 million per individual. An estate may generally be required to file a federal estate tax return if the decedent’s gross estate, increased by certain adjusted taxable gifts and other amounts included in the federal calculation, exceeds the applicable filing threshold. Different filing rules can apply when an estate elects portability of a deceased spouse’s unused exclusion.

Creating a standard revocable living trust generally does not reduce federal estate taxes by itself. Because the grantor typically retains control of property in a revocable trust, the trust property generally remains part of the grantor’s taxable estate.

Income tax treatment is another consideration. A typical revocable living trust is generally treated as a grantor trust for federal income tax purposes, meaning the grantor ordinarily continues to report the trust’s income while alive. Different tax rules can apply to irrevocable trusts and after a revocable trust becomes irrevocable, such as following the grantor’s death.

More specialized trust strategies can have different estate, gift and income tax consequences, so the tax effects depend on how a trust is structured and funded.

Bottom Line

A living trust can help Tennessee residents manage property during their lifetime and establish how certain assets should be handled after death. Properly transferred trust assets can generally avoid probate, and a successor trustee can provide continuity if the original trustee dies or becomes unable to manage the property. However, a trust isn’t necessary for every estate, and signing the trust document alone doesn’t automatically transfer assets into it. The potential benefits should be weighed against the costs and administrative work involved in creating, funding and maintaining the trust.

Estate Planning Tips

• A financial advisor can help you with tax planning and wealth transfers, as well as investing assets to preserve capital. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Designate your beneficiaries. As tedious as filling out the forms can be, it is well worth the trouble. Pensions, life insurance policies, retirement accounts and brokerage accounts can all be easily transferred if you designate your beneficiaries. Then keep them updated, especially if you subsequently have children or get divorced.

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