2026 Tennessee Trust Law Changes Explained

A new round of trust legislation took effect in Tennessee on July 1, 2026. The changes touch tax treatment, court privacy, and trustee protections. If you serve as a trustee or hold assets in a Tennessee trust, a few of these updates are worth understanding now rather than later.

Why Tennessee Keeps Revising Its Trust Code

Tennessee has spent the past decade building a reputation as one of the more favorable states for trust administration. Lawmakers revisit the trust code most years, often with input from bank trust officers and estate planning attorneys around the state. The 2026 legislation continues that pattern with a handful of practical adjustments rather than a wholesale rewrite.

The changes were enacted through Public Chapter 616 of the 114th Tennessee General Assembly and took effect on July 1, 2026.

A Wider FONCE Exemption

The Family-Owned Non-Corporate Entity exemption lets qualifying family-owned LLCs and limited partnerships skip Tennessee’s franchise and excise tax on certain passive income. Before this update, the exemption applied only when a family member owned the entity directly, or when a testamentary trust (one created at death) held the interest. Revocable living trusts and lifetime irrevocable trusts fell outside that protection, which created an awkward choice for families. Many people place LLC or partnership interests into a revocable trust specifically to avoid probate.

Under the new law, entities owned by an inter vivos trust for qualifying relatives now count toward the exemption, regardless of whether the trust was created during the settlor’s lifetime or after death. Families no longer have to weigh sound trust planning against a valuable tax break.

Keeping Trust Matters Out of the Public Record

Trust disputes tend to involve sensitive financial and family details, and court filings are public by default unless a judge orders otherwise. Public Chapter 616 flips that presumption for certain internal trust matters. When a dispute involves only the trustee and qualified beneficiaries, and unredacted copies go to the court and all beneficiaries, filings may now be sealed or redacted without a separate court order.

This matters for families who value privacy but who previously had to petition for sealing case by case. Courts still retain authority to unseal records for good cause, so the change is not absolute. It does, however, remove a real obstacle for people trying to keep private family matters private.

More Protection and Clarity for Trustees

The legislation also strengthens the ground trustees stand on:

• Trustees may pay properly incurred expenses, including attorney’s fees for defending a claim, directly from trust assets, subject to court oversight.
• Trustees, trust advisors, and protectors managing a closely held business now receive business-judgment-rule treatment, meaning a good-faith, informed decision will not automatically create liability just because a court might have chosen differently.
• The threshold for terminating an uneconomic trust rose from $100,000 to $250,000, an inflation adjustment that gives trustees more room to wind down small trusts without unnecessary cost.

What This Means for Trustees, Settlors, and Beneficiaries

If you hold LLC or partnership interests and have hesitated to fund a revocable trust because of the FONCE exemption, that concern is largely resolved now. If you are a beneficiary, the privacy changes should make it easier to keep family disputes out of public view when everyone involved agrees to the process. And if you serve as trustee, particularly of a trust holding a family business, you now have firmer legal footing when making good-faith management decisions.

Anyone searching for a Maryville, TN trust lawyer should understand that these changes affect existing trusts as well as new ones. A trust drafted years ago under the old rules may benefit from a review to see whether its structure still makes sense.

At Carpenter & Lewis PLLC, we work with trustees, settlors, and beneficiaries throughout East Tennessee to keep trust administration on solid legal ground. Tennessee’s trust code changes fairly often, and a trust that was well drafted five years ago may not take full advantage of what the law allows today.

If you have questions about how Public Chapter 616 affects your trust, your duties as a trustee, or your broader estate plan, reach out to our team today. We’re glad to walk through what these changes mean for your specific situation.