A trust is a legal document/arrangement that provides for another (“trustee”) to hold or use your property for your benefit during your lifetime, and after death, for the benefit of your designated beneficiaries. A person who signs a trust (“trustor”) names a trustee who would be responsible for managing their property at a certain point. Usually a trustor is an individual or a married couple, and the trustor is usually the trustee while the trustor has capacity to manage their own property. The nominated “successor trustee” typically acts when the current trustee loses capacity, passes away, resigns, or is removed.
The trust document itself typically has terms stating duties and responsibilities of a trustee. In addition, effective January 1, 2009, the Arizona legislature adopted the Arizona Trust Code, which can be found in Chapter 11 of Title 14 of the Arizona Revised Statutes. A.R.S. section 14-10105(B) requires that a trustee has to “act in good faith and in accordance with the purposes of the trust.” In addition, the trustee has a 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. Generally, a trustee can act without court authorization and has powers listed in the terms of the trust. The trustee has all powers over the trust property that an unmarried competent owner has over individually owned property, any other powers appropriate to achieve proper investment, management and distribution of trust property, and powers in the Arizona Trust Code, unless the trust limits otherwise. A.R.S. section 14-10816 states specific powers of a trustee, which include collecting/selling trust property, handling and borrowing trust monies, repair/demolish/insure (real) property, enter leases/sign contracts, abandon unproductive trust property, pay/contest/settle/release claims, pay expenses, and prosecute or defend actions to protect trust property and trustee in performance of trustee’s duties.
Article 8 of the Arizona Trust Code further adds the following duties of a trustee:
- Duty to Administer the trust according to the terms of the trust and the interests of the beneficiaries
- Duty of Loyalty Solely in the Interests of the Beneficiaries. R.S. section 14-10802 contains specifics regarding any transactions relating to conflict between a trustee’s fiduciary and personal (i.e. financial) interests and where a trustee retains “significant influence over a beneficiary and from which the trustee obtains an advantage” with the presumption that these transactions are voidable
- Duty to Act Impartially if a trust has two or more beneficiaries in making decisions in investing, managing, and distributing trust property with due regard to beneficiaries’ respective interests
- Duty to Prudently Administer Trust using the standard of care of a “prudent person” with “reasonable care, skill and caution” while considering the purposes, terms, distributional requirements and other circumstances of the trust
- Duty to Incur Reasonable Costs Only while considering the trust property, purposes of the trust, and the skills of the trustee
- Duty to Use Any Special Skills or Expertise that the trustee has, especially if the Trustor(s) considered such skills in naming the trustee (“in reliance on the trustee’s representation that the trustee has such special skills or expertise” – A.R.S. section 14-10806)
- Duty to Oversee Duties and Powers Delegated to Others, provided that a prudent trustee of comparable skills could properly delegate such duties and powers under the circumstances. Trustee has to exercise reasonable care, skill, and caution in selecting an agent, establishing scope and terms of the delegation consistent with the purposes and terms of the trust, periodically review the agent’s actions in order to monitor agent’s performance and compliance with terms of the delegation. The agent also has a duty to the trust to exercise reasonable care to comply with terms of the delegation.
- Duty to Control and Protect Trust Property, using reasonable steps to ensure the same
- Duty to Keep Adequate Records of Administration and Keep Trust Property Separate from trustee’s own property
- Duty to Enforce and Defend Trust Claims, using reasonable steps to ensure the same
- Duty to Collect Trust Property, using reasonable steps to compel and to redress any breach of trust committed by former trustee.
- Duty to Inform and Report to the qualified beneficiaries about the administration of the trust and the material facts necessary for them to protect their interests. R.S. section 14-10813 is by far the statute most used by qualified beneficiaries in requesting information from a trustee. A trustee has to promptly respond to a beneficiary’s request for information related to trust administration unless the trustee determines it is unreasonable to do so under the circumstances. If a beneficiary requests a copy of the trust, a trustee has to promptly provide a copy of the portions of the trust instrument that are necessary to describe the beneficiary’s interest. The trustee has to notify beneficiaries within 60 days of acceptance of the trusteeship, and provide trustee’s name, address and phone number. The trustee also has to notify within 60 days of a revocable trust becoming irrevocable (usually due to trustor’s death or incapacity) that a trust document exists, identity of trustor(s), trustee’s name, address and phone number, of the right to request a copy of relevant portions of the trust, and right to trustee’s report/accounting. If a trustee changes method or rate of compensation, trustee has to provide 30 days’ notice to the beneficiaries. The trustee also has to provide a report of the “trust property, liabilities, receipts and disbursements, including the source and amount of trustee’s compensation, a listing of the trust assets and their respective market values” to the distributees, permissible distributes of trust income or principal and to other beneficiaries who request it. Effective June 27, 2018, persons entitled to information about trust administration, copy of relevant portions of the trust, existence of trust, identity of trustor, and trustee’s report will not include a beneficiary entitled to at least one specific distribution of property if distribution has already been made to that person or have otherwise been satisfied.
- Duty to Exercise Any Discretionary Power in Good Faith As to Only Trust Beneficiaries and Creditors and to no other persons, including creditors of the beneficiaries
- Duty to Comply with Prudent Investor Rule Requirements (includes additional considerations of general economic considerations, possible effect of inflation or deflation, expected tax consequences of investment decisions or strategies, role each investment/course of action plays within overall trust portfolio, expected total return from income and appreciation of capital, beneficiaries’ other resources, needs for liquidity, regularity of income and preservation or appreciation of capital, and asset’s special relationship/value to the purposes of the trust or to one or more of the beneficiaries) if there are investments and management of trust assets by the trustee.
As noted above, the duty of a trustee is an onerous one, and any decision undertaken should be thoroughly considered with the above in mind, in conjunction with the specific terms of the applicable trust. Due to the potential exposure to liability for any decision made or action taken by a trustee, proper legal advice is essential in trust administration and may be paid for by the trust as a cost of administration. The attorneys at Bivens & Associates have decades of experience in dealing with varying types of trust administration cases, routinely represent trustees, and can assist with your trust matter. Call us for the legal advice you need to protect both yourself, as Trustee, and the beneficiaries of the trust.
By Letty Segovia, Attorney at Law