On July 1, 2026, several changes to Tennessee’s trust and estate lawstake effect. The new law refines trustee duties and liability, extends apopular state tax exemption to family entities held in trusts, and givestrustees and beneficiaries a clearer path to keep private trust matters out ofthe public record. Below, we walk through thechanges most likely to affect you.
Key Takeaways
• The Family-Owned Non-Corporate Entity (FONCE) franchise and excise tax exemption now reaches entities owned by inter vivos trusts (i.e., revocable living trusts and irrevocable trusts created by a living settlor), not just by family members or trusts of deceased family members.
• Confidentialtrust information in court filings (including the identity of the parties) maynow be redacted or filed under seal without a prior court order in qualifying trustadministration matters.
• Trusteesgain additional protections, including business-judgment-rule treatment formanaging closely held businesses and clear authority to pay properly incurredexpenses from trust assets.
Why Tennessee Keeps Updating Its Trust Laws
Tennessee regularly ranks among the best states in which to locate atrust. Over the past decade, trust assets administered by Tennessee-charteredinstitutions have grown from about $25 billion to more than $300 billion. TheGeneral Assembly sustains that momentum by revisiting the trust code annually withinput from trust officers and practitioners across the state. The 2026 legislationcontinues that tradition, making targeted, practical improvements that keepTennessee at the forefront of trust law.
Extending the FONCE Exemption to Inter Vivos Trusts
The Family-Owned Non-Corporate Entity exemption allows qualifyingfamily-owned LLCs and limited partnerships holding certain passive investments toavoid Tennessee franchise and excise tax. Until now, this exemption applied onlyto entities owned by family members or by a testamentary trust, not torevocable trusts or other trusts created by a living family member—a trap thatcomplicated otherwise routine estate planning. The new law expands theexemption so that ownership by a trust for qualifying relatives counts, whetherthe trust was created by a living or deceased person. Families often hold LLCand partnership interests in revocable trusts to avoid probate and simplify management,or in lifetime irrevocable trusts for asset protection and tax planning. They no longer have to choose between sound trust planningand a valuable tax exemption.
Keeping Private Trust Matters Out of the Public Record
Trust disputes and administrative proceedings often require parties toput sensitive family and financial information into court filings, which aregenerally public unless the court seals them case by case. The new law allowsconfidential trust information in court filings, including court orders, to beredacted or filed under seal by default, without first obtaining a court order,provided certain conditions are met: (1) complete, unredacted copies arepromptly furnished to the court in camera and to all qualified beneficiaries; (2)the trustee and qualified beneficiaries consent; and (3) the matter involvesonly the trustee and qualified beneficiaries, without third parties, andconcerns the validity, construction, or administration of the trust. The newlaw also includes a presumption of a compelling interest in keeping courtrecords sealed for private trust matters. The protected information includesthe identities of the settlors, trustees, and beneficiaries. The legislationrecognizes that these are private matters among private parties, with littlelegitimate public interest and real risk of embarrassment or harm fromdisclosure. Courts still retain the authority to order production of unredactedfilings for cause shown. For families who value the privacy a trust is meant toprovide, this is a real improvement over seeking a sealing order case by case.
Additional Protections for Trustees
• Payingexpenses and defense costs from the trust. The law confirms that a trusteemay pay properly incurred expenses, including attorney’s fees and costs ofdefending an action against the trustee, directly from the trust estate. Thecourt retains the power to halt further payments, order reimbursement, or awardcosts at the conclusion of a matter.
• Closelyheld businesses. Trustees, trust advisors, and protectors who manage aclosely held business in a controlling capacity now have the protection of thebusiness judgment rule. A good-faith, well-informed decision will not exposethem to liability simply because a court or beneficiary would have decideddifferently.
• Largersmall-trust threshold. A trustee may terminate an uneconomic trust when itsvalue falls below $250,000, up from $100,000, a common-sense adjustment forinflation.
What This Means for You
If you hold a family-owned LLC or limited partnership interest but haveresisted creating lifetime trusts to avoid losingthe FONCE exemption, these changes may directly affect your estate and taxplanning. If you are a settlor or beneficiary, the confidentiality changes helpensure that trusts are administered as intended and that private family mattersstay private. And if you serve as a trustee, particularly of a trust that holdsa family business or that may face a beneficiary dispute, the new protectionsgive you greater clarity in carrying out your duties. As always, the detailsmatter, and the right course depends on your specific circumstances.
Conclusion
The 2026 trust legislation keeps Tennessee’s rules practical and workablefor trustees and families, and we will continue to help shape Tennessee trustlaw through our service on the TBA Trust Legislative Committee. If you havequestions about how these changes affect your trust, your role as a trustee, oryour broader estate plan, contact Riggs Davie PLC to schedule a consultation.
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