Arizona Trust Statutes (Selected Provisions)
In this article, unless the context otherwise requires:
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2. "Beneficiary" means a person who either:(a) Has a present or future beneficial interest in a trust, vested or contingent.(b) In a capacity other than that of a trustee, holds a power of appointment over trust property.
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16. "Settlor" means a person, including a testator, who creates or contributes property to a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person's contribution except to the extent another person has the power to revoke or withdraw that portion.
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18. "Spendthrift provision" means a term of a trust that restrains either voluntary or involuntary transfer of a beneficiary's interest.
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20. "Terms of a trust" means the manifestation of the settlor's intent regarding a trust's provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding.
21. "Trust instrument" means an instrument executed by the settlor that contains terms of the trust, including any amendments to that trust.
22. "Trustee" includes an original, additional and successor trustee and a cotrustee.
14-10105. Default and mandatory rules
A. Except as otherwise provided in the terms of the trust, this chapter governs:
1. The duties, powers, exercise of powers resignation, and appointment of a trustee.
2. Conflicts of interest of a trustee.
3. Relations among trustees.
4. Mergers or divisions of trusts.
5. The rights and interests of a beneficiary.
B. The terms of a trust prevail over any provision of this chapter except:14-10106. Common law of trusts; principles of equity
1. The requirements for creating a trust.
2. The duty of a trustee to act in good faith and in accordance with the purposes of the trust.
3. The requirement that a trust and its terms be for the benefit of its beneficiaries and that the trust have a purpose that is lawful, not contrary to public policy and possible to achieve.
4. The power of the court to modify or terminate a trust under sections 14-10410, 14-10411, 14-10412, 14-10413, 14-10414, 14-10415 and 14-10416 [all of which deal with modification or termination of the trust under certain circumstances].
5. The effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in article 5 of this chapter.
6. The power of the court under section 14-10702 to require, dispense with, modify or terminate a bond.
7. The power of the court under section 14-10708, subsection B to adjust a trustee's compensation specified in the terms of the trust that is unreasonably low or high.
8. The duty to respond to the request of a qualified beneficiary of an irrevocable trust for trustee's reports and other information reasonably related to the administration of a trust.
9. The effect of an exculpatory term under section 14-11008.
10. The rights under sections 14-11010, 14-11011, 14-11012 and 14-11013 of a person other than a trustee or beneficiary.
11. Periods of limitation for commencing a judicial proceeding.
12. The power of the court to take action consistent with the settlor's intent and exercise jurisdiction as may be necessary in the interests of justice.
13. The subject matter jurisdiction of the court and venue for commencing a proceeding as provided in sections 14-10203 and 14-10204.
14. The notice provisions of section 14-10110, subsection B.
A. The common law of trusts and principles of equity supplement this chapter, except to the extent modified by this chapter or another statute of this state.
B. The court shall look to the restatement (second) of trusts for interpretation of the common law and not to subsequent restatements of trusts to determine:
1. The rights and powers of creditors of beneficiaries.
2. The duties of trustees to distribute to those to whom a beneficiary owes any duties.
3. Whether public policy may affect enforceability and effectiveness of the terms of the trust.
4. And effectuate the settlor's intent.
14-10401. Methods of creating trust
A trust may be created by:
1. Transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect on the settlor's death.
2. Declaration by the owner of property that the owner holds identifiable property as trustee.
3. Exercise of a power of appointment in favor of a trustee.
14-10404. Trust purposes
A trust may be created only to the extent that its purposes are lawful, not contrary to public policy and possible to achieve. A trust and its terms must be for the benefit of its beneficiaries.
14-10413. Cy pres
A. Except as otherwise provided in subsection B, if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve or wasteful:
1. The trust does not fail in whole or in part.
2. The trust property does not revert to the settlor or the settlor's successors in interest.
3. The court may apply cy pres to modify or terminate the trust by directing that the trust property be applied or distributed in whole or in part in a manner consistent with the settlor's charitable purposes.
B. A provision in the terms of a charitable trust that would result in distribution of the trust property to a noncharitable beneficiary prevails over the power of the court under subsection A to apply cy pres to modify or terminate the trust only if, when the provision takes effect:
1. The trust property is to revert to the settlor and the settlor is still living.
2. Fewer than twenty-one years have elapsed since the date of the trust's creation.
14-10501. Rights of beneficiary's creditor or assignee; exception
A. The court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or by other means. The court may limit the award to such relief as is appropriate under the circumstances.
B. This section does not apply and a trustee has no liability to any creditor of a beneficiary for any distributions made to or for the benefit of the beneficiary to the extent a beneficiary's interest is protected by a spendthrift provision or is a discretionary trust interest referred to in section 14-10504.
14-10502. Spendthrift provision
A. A spendthrift provision is valid only if it restrains either voluntary or involuntary transfer of a beneficiary's interest.
B. A term of a trust providing that the interest of a beneficiary is held subject to a spendthrift trust, or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary's interest.
C. A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this article, a creditor or assignee of the beneficiary may not attach, garnish, execute on or otherwise reach the interest or a distribution by the trustee before its receipt by the beneficiary.
14-10503. Exceptions to spendthrift provision; definition
A. Even if a trust contains a spendthrift provision, a beneficiary's child who has a judgment or court order against the beneficiary for support or maintenance, or a judgment creditor who has provided services relating to the protection of a beneficiary's interest in the trust, may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary only for these matters. . . . .
14-10504. Discretionary trusts; effect of standard; definition
A. Except as provided in subsection B of this section, whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee's discretion, even if either:
1. The discretion is expressed in the form of a standard of distribution.
2. The trustee has not complied with the applicable standard of distribution or has abused the discretion regarding distributions.
B. To the extent a trustee has not complied with the applicable standard of distribution or has abused the discretion regarding distributions:
1. Except as provided in section 14-10503, a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child.
2. The court shall direct the trustee to pay to the child an amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion.
C. This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution, provided that this right may not be exercised by a creditor of the beneficiary.
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E. A creditor of a beneficiary, whether or not the beneficiary is also a trustee or cotrustee, may not reach the beneficiary's beneficial interest or otherwise compel a distribution if either the trustee's discretion to make distributions for the trustee's or beneficiary's own benefit is purely discretionary or is limited by an ascertainable standard, including a standard relating to the beneficiary's health, education, support or maintenance . . . .
14-10505. Creditor's claim against settlor
A. Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:
1. During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors. . . . .
2. Subject to the requirements of this section, with respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit. . . . .
14-10506. Overdue distribution; definition
A. Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution on termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the mandated distribution date unless the terms of the trust expressly authorize the trustee to delay the distribution to protect the beneficiary's interest in the distribution.
B. For the purposes of this section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution on termination of the trust. Mandatory distribution does not include a distribution that is subject to the exercise of the trustee's discretion even if:
1. The discretion is expressed in the form of a standard of distribution.
2. The terms of the trust authorizing a distribution couple language of discretion with language of direction.
14-10801. Duty to administer trust
On acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries and in accordance with this chapter.
14-10802. Duty of loyalty
A. A trustee shall administer the trust solely in the interests of the beneficiaries.
B. Subject to the rights of persons dealing with or assisting the trustee as provided in section 14-11012, a sale, encumbrance or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or that is otherwise affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless either:
1. The transaction was authorized by the terms of the trust.
2. The transaction was approved by the court.
3. The beneficiary did not commence a judicial proceeding within the time allowed by section 14-11005.
4. The beneficiary consented to the trustee's conduct, ratified the transaction or released the trustee in compliance with section 14-11009.
5. The transaction involves a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee.
C. A sale, encumbrance or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by the trustee with:
1. The trustee's spouse.
2. The trustee's descendants, siblings or parents or their spouses.
3. An agent or attorney of the trustee.
4. A corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment.
D. A transaction between a trustee and a beneficiary that does not concern trust property but that occurs during the existence of the trust or while the trustee retains significant influence over the beneficiary and from which the trustee obtains an advantage is voidable by the beneficiary unless the trustee establishes that the transaction was fair to the beneficiary.
E. A transaction not concerning trust property in which the trustee engages in the trustee's individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust.
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H. This section does not preclude the following transactions, if fair to the beneficiaries:
1. An agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee.
2. Payment of reasonable compensation to the trustee.
3. A transaction between a trust and another trust, decedent's estate or conservatorship of which the trustee is a fiduciary or in which a beneficiary has an interest.
4. A deposit of trust money in a regulated financial service institution operated by the trustee.
5. An advance by the trustee of money for the protection of the trust.
I. The court may appoint a special fiduciary to make a decision with respect to any proposed transaction that may violate this section if entered into by the trustee.
If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing and distributing the trust property, giving due regard to the beneficiaries' respective interests.
14-10804. Prudent administration
A trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution.
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14-10815. General powers of trustee
A. A trustee, without authorization by the court, may exercise:
1. Powers conferred by the terms of the trust.
2. Except as limited by the terms of the trust:
(a) All powers over the trust property that an unmarried competent owner has over individually owned property.
(b) Any other powers appropriate to achieve the proper investment, management and distribution of the trust property.
(c) Any other powers conferred by this chapter.
B. The exercise of a power by a person acting in a fiduciary capacity is subject to the fiduciary duties prescribed by this article.
14-10901. Prudent investor rule
A. Except as provided in subsection B, a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule requirements of this article.
B. The prudent investor rule is a default rule and may be expanded, restricted, eliminated or otherwise altered by the provisions of a trust.
C. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust.
14-10902. Standard of care; portfolio strategy; risk and return objectives
A. A trustee shall invest and manage trust assets as a prudent investor would by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill and caution.
B. A trustee's investment and management decisions respecting individual assets shall not be evaluated in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.
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14-11001. Remedies for breach of trust
A. A violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust.
B. Except as provided in section 14-7404 [relating to judicial control over a fiduciary's discretionary powers], to remedy a breach of trust that has occurred or may occur, the court may:
1. Compel the trustee to perform the trustee's duties.
2. Enjoin the trustee from committing a breach of trust.
3. Compel the trustee to redress a breach of trust by paying money, restoring property or other means.
4. Order a trustee to account.
5. Appoint a special fiduciary to take possession of the trust property and administer the trust.
6. Suspend the trustee.
7. Remove the trustee as provided in section 14-10706.
8. Reduce or deny compensation to the trustee.
9. Subject to section 14-10706, void an act of the trustee, impose a lien or a constructive trust on trust property or trace trust property wrongfully disposed of and recover the property or its proceeds.
10. Order any other appropriate relief.
14-11008. Exculpation of trustee
A. A term of a trust relieving a trustee of liability for breach of trust is unenforceable to the extent that it either:
1. Relieves the trustee of liability for breach of trust committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries.
2. Was inserted as the result of an abuse by the trustee of a fiduciary or confidential relationship to the settlor.
B. An exculpatory term drafted or caused to be drafted by the trustee is invalid as an abuse of a fiduciary or confidential relationship unless the trustee proves that the exculpatory term is fair under the circumstances and that its existence and contents were adequately communicated to the settlor.
C. Subsection B does not apply to an irrevocable trust created before January 1, 2009 or to a revocable trust created before January 1, 2009 that is not amended on or after January 1, 2009.
14-11009. Beneficiary's consent, release or ratification
A trustee is not liable to a beneficiary for breach of trust if the beneficiary consented to the conduct constituting the breach, released the trustee from liability for the breach or ratified the transaction constituting the breach, unless either:
1. The consent, release or ratification of the beneficiary was induced by improper conduct of the trustee.
2. At the time of the consent, release or ratification, the beneficiary did not know of the beneficiary's rights or of the material facts relating to the breach.
14-11010. Limitation on personal liability of trustee
A. Except as otherwise provided in the contract, a trustee is not personally liable on a contract properly entered into in the trustee's fiduciary capacity in the course of administering the trust if the trustee in the contract disclosed the fiduciary capacity.
B. A trustee is personally liable for torts committed in the course of administering a trust or for obligations arising from ownership or control of trust property, including liability for violation of environmental law, only if the trustee is personally at fault.
C. A claim based on a contract entered into by a trustee in the trustee's fiduciary capacity, on an obligation arising from ownership or control of trust property or on a tort committed in the course of administering a trust may be asserted in a judicial proceeding against the trustee in the trustee's fiduciary capacity, whether or not the trustee is personally liable for the claim.
14-11012. Protection of person dealing with trustee
A. A person other than a beneficiary who in good faith assists a trustee or who in good faith and for value deals with a trustee, without knowledge that the trustee is exceeding or improperly exercising the trustee's powers, is protected from liability as if the trustee properly exercised the power.
B. A person other than a beneficiary who in good faith deals with a trustee is not required to inquire into the extent of the trustee's powers or the propriety of their exercise.
C. A person who in good faith delivers assets to a trustee need not ensure their proper application.
D. A person other than a beneficiary who in good faith assists a former trustee or who in good faith and for value deals with a former trustee, without knowledge that the trusteeship has terminated, is protected from liability as if the former trustee were still a trustee.
E. Comparable protective provisions of other laws relating to commercial transactions or transfer of securities by fiduciaries prevail over the protection provided by this section.