A.R.S. tit. 14 ch. 11 — Arizona Revised Statutes Title 14 Chapter 11 — Arizona Trust Code

14-10101. Short title This chapter may be cited as the Arizona trust code. 14-10102. Scope This chapter applies to express trusts, charitable or noncharitable trusts and trusts created pursuant to a statute, judgment or decree that requires the trust to be administered in the manner of an express trust. 14-10103. Definitions In this chapter, unless the context otherwise requires: 1. "Action", with respect to an act of a trustee, includes a failure to act. 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. 3. "Charitable trust" means a trust, or portion of a trust, created for a charitable purpose described in section 14-10405, subsection A. 4. "Conservator" means a person appointed by the court to administer the estate of a minor or an adult. 5. "Distributee" means a person who receives property from a trust other than as a creditor or purchaser. 6. "Environmental law" means a federal, state or local law, rule, regulation or ordinance relating to protection of the environment. 7. "Guardian" means a person appointed by the court to make decisions regarding the support, care, education, health and welfare of a minor or an adult. Guardian does not include a guardian ad litem. 8. "Interests of the beneficiaries" means the beneficial interests provided in the terms of the trust. 9. "Internal revenue code" has the same meaning prescribed in section 43-105. 10. "Jurisdiction", with respect to a geographic area, includes a state or country. 11. "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or any other legal or commercial entity. 12. "Power of withdrawal" means a presently exercisable general power of appointment other than a power exercisable either: (a) By a trustee and limited by an ascertainable standard. (b) By a person other than in a fiduciary capacity and only on the consent of the trustee or a person holding an adverse interest. 13. "Property" means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest in anything that may be the subject of ownership. 14. "Qualified beneficiary" means a beneficiary who, on the date the beneficiary's qualification is determined: (a) Is a distributee or permissible distributee of trust income or principal. (b) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in subdivision (a) of this paragraph terminated on that date. (c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date. 15. "Revocable", as applied to a trust or a portion of a trust, means revocable by a settlor without the consent of any person, including the trustee or a person who holds an interest that is either adverse or not adverse. 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. 17. "Special needs trust" means a trust established for the benefit of one or more persons with disabilities if one of the purposes of the trust, expressed in the trust instrument or implied from the trust instrument, is to allow the person with a disability to qualify or continue to qualify for public, charitable or private benefits that might otherwise be available to the person with a disability. The existence of one or more remainder beneficiaries without a disability of the trust shall not disqualify it as a special needs trust for the purposes of this paragraph. For the purposes of this paragraph, "person with a disability" means an individual who has a disability pursuant to 42 United States Code section 1382c. 18. "Spendthrift provision" means a term of a trust that restrains either voluntary or involuntary transfer of a beneficiary's interest. 19. "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States. State includes an Indian tribe or band recognized by federal law or formally acknowledged by a state. 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. 14-10104. Knowledge A. Subject to subsection B, a person has knowledge of a fact if any of the following apply: 1. The person has actual knowledge of it. 2. The person has received a notice or notification of it. 3. From all the facts and circumstances known to the person at the time in question, the person has reason to know it. B. An organization that conducts activities through employees has notice or knowledge of a fact involving a trust only from the time the information was received by an employee having responsibility to act for the trust or would have been brought to the employee's attention if the organization had exercised reasonable diligence. An organization exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the employee having responsibility to act for the trust and there is reasonable compliance with the routines. Reasonable diligence does not require an employee of the organization to communicate information unless the communication is part of the individual's regular duties or the individual knows a matter involving the trust would be materially affected by the information. 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. Combinations 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: 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. 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. 15. The enforceability of a penalty clause under section 14-10113. 14-10106. Common law of trusts; principles of equity 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. 14-10107. Governing law A. The meaning and effect of the terms of a trust are determined by the law of the jurisdiction designated in the terms of the trust instrument. B. In the absence of a controlling designation in the terms of the trust, the laws of the jurisdiction where the trust was executed determine the validity of the trust, and the laws of descent and the law of the principal place of administration determine the administration of the trust. 14-10108. Principal place of administration A. Without precluding other means for establishing a sufficient connection with the designated jurisdiction, terms of a trust designating the principal place of administration are valid and controlling if either: 1. A trustee's principal place of business is located in or a trustee is a resident of the designated jurisdiction. 2. All or part of the administration occurs in the designated jurisdiction. B. A trustee is under a continuing duty to administer the trust at a place appropriate to its purposes, its administration and the interests of the beneficiaries. C. Without precluding the right of the court to order, approve or disapprove a transfer, the trustee, in furtherance of the duty prescribed by subsection B of this section, may transfer the trust's principal place of administration to another state or to a jurisdiction outside of the United States and, subject to the requirements of section 14-10818, may change the applicable law governing the trust. D. The trustee shall notify the qualified beneficiaries of a proposed transfer of a trust's principal place of administration at least sixty days before initiating the transfer. Unless a corporate trustee indicates an intent to change the principal place of business in a notice to qualified beneficiaries, a transfer by the corporate trustee of some of the functions of a trust to another state or states is not a transfer of the trust's principal place of business if the corporate trustee maintains an office in this state. The notice of proposed transfer must include: 1. The name of the jurisdiction to which the principal place of administration is to be transferred. 2. The address and telephone number of the new location at which the trustee can be contacted. 3. An explanation of the reasons for the proposed transfer. 4. The date on which the proposed transfer is anticipated to occur. 5. The date, at least sixty days after the giving of the notice, by which the qualified beneficiary must notify the trustee of an objection to the proposed transfer. E. The authority of a trustee under this section to transfer a trust's principal place of administration terminates if a qualified beneficiary notifies the trustee in writing of a reasonably founded objection to the proposed transfer on or before the date specified in the notice. F. In connection with a transfer of the trust's principal place of administration, the trustee may transfer some or all of the trust property to a successor trustee designated in the terms of the trust or appointed pursuant to section 14-10704. 14-10109. Methods and waiver of notice A. Notice to a person under this chapter or the sending of a document to a person under this chapter must be accomplished in a manner reasonably suitable under the circumstances and likely to result in receipt of the notice or document. Permissible methods of notice or for sending a document include first class mail, personal delivery, delivery to the person's last known place of residence or place of business or a properly directed electronic message. B. Notice otherwise required under this chapter or a document otherwise required to be sent under this chapter need not be provided to a person whose identity or location is unknown to and not reasonably ascertainable by the trustee. C. Notice under this chapter or the sending of a document under this chapter may be waived by the person to be notified or sent the document. D. Notice of a judicial proceeding must be given pursuant to section 14-1401. 14-10110. Others treated as qualified beneficiaries A. A charitable organization that is expressly and irrevocably designated to receive distributions under the terms of a charitable trust or a person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in section 14-10408 or 14-10409 has the rights of a qualified beneficiary under this chapter. B. With respect to a charitable trust created on or after January 1, 2009 having its principal place of administration in this state, a trustee: 1. Within sixty days after the creation of a charitable trust, shall promptly furnish to the attorney general a copy of the portions of the charitable trust instrument that are necessary to describe the charitable purpose. 2. Within sixty days after accepting a trusteeship for a charitable trust, shall notify the attorney general of the acceptance and of the trustee's name, address and telephone number. 3. At least thirty days in advance, shall notify the attorney general of any of the following: (a) Any change in the charitable trust's principal place of administration to another state. (b) Any dissolution of the charitable trust. (c) Any change in the charitable purpose of the charitable trust. (d) Any court proceedings regarding the charitable trust. (e) Any change in the method or rate of the trustee's compensation. C. For the purposes of subsection B of this section, a "charitable trust" means a trust that is a qualified entity under section 501(c)(3) of the internal revenue code for tax exempt status under section 501(a) of the internal revenue code. 14-10111. Nonjudicial settlement agreements; definition A. Except as otherwise provided in subsection B of this section, and except for modification or termination of a trust as otherwise permitted pursuant to the trust instrument, interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust. B. A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this chapter or other applicable law. C. Matters that may be resolved by a nonjudicial settlement agreement include: 1. The interpretation or construction of the terms of the trust. 2. The approval of a trustee's report or accounting. 3. Direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power. 4. The resignation or appointment of a trustee and the determination of a trustee's compensation. 5. The transfer of a trust's principal place of administration. 6. The liability of a trustee for an action relating to the trust. D. Before or after the parties enter into a nonjudicial settlement agreement, any interested person may request the court to approve a nonjudicial settlement agreement to determine whether the representation as provided in article 3 of this chapter was adequate and to determine whether the agreement contains terms and conditions the court could have properly approved. E. Unless the interested person, pursuant to subsection D of this section, asks the court to rule without regard to this subsection, the court may either approve the agreement or decline to approve the agreement, but may not disapprove or deny the effectiveness of the agreement. If the court does not approve the agreement pursuant to this subsection, the failure to approve is not any prejudice against the effectiveness of the agreement and is not a final judgment or judicial precedent with respect to the agreement or subsequent agreements pursuant to the section. F. For the purposes of this section, "interested person" has the same meaning prescribed in section 14-1201. 14-10112. Rules of construction The rules of construction that apply in this state to the interpretation of and disposition of property by will also apply as appropriate to the interpretation of the terms of a trust and the disposition of the trust property. 14-10113. Penalty clause for contest; restriction A provision in a trust instrument that purports to penalize an interested person for contesting the trust instrument or instituting other proceedings or actions relating to the trust property is unenforceable if probable cause exists for the contest, proceedings or actions. 14-10201. Role of court in administration of trust A. The court may intervene in the administration of a trust to the extent its jurisdiction is invoked by an interested person or as provided by law. B. A trust is not subject to continuing judicial supervision unless ordered by the court. C. A judicial proceeding involving a trust may relate to any matter involving the trust's administration, including a request for instructions and an action to declare rights. 14-10202. Jurisdiction over trustee and beneficiary A. By accepting the trusteeship of a trust having its principal place of administration in this state or by moving the principal place of administration to this state, or until otherwise declared by the trustee if a proceeding regarding a matter involving the trust is not pending in a court of this state, by declaring that the trust is subject to the jurisdiction of the courts of this state, the trustee submits personally to the jurisdiction of the courts of this state regarding any matter involving the trust. B. With respect to their interests in the trust, the beneficiaries of a trust having its principal place of administration in this state are subject to the jurisdiction of the courts of this state regarding any matter involving the trust. By accepting a distribution from such a trust, the recipient submits personally to the jurisdiction of the courts of this state regarding any matter involving the trust. C. This section does not preclude other methods of obtaining jurisdiction over a trustee, beneficiary or other person receiving property from the trust. 14-10203. Subject matter jurisdiction A. The superior court has exclusive jurisdiction of proceedings in this state brought by a trustee or beneficiary concerning the administration of a trust. B. The superior court has concurrent jurisdiction with other courts of this state of other proceedings involving a trust. 14-10204. Venue A. Except as otherwise provided in subsection B, venue for a judicial proceeding involving a trust is in the county of this state in which the trust's principal place of administration is or will be located and, if the trust is created by will and the estate is not yet closed, in the county in which the decedent's estate is being administered. B. If a trust has no trustee, venue for a judicial proceeding for the appointment of a trustee is in a county of this state in which a beneficiary resides, in a county in which any trust property is located, and if the trust is created by will, in the county in which the decedent's estate was or is being administered. 14-10205. Alternative dispute resolution A trust instrument may provide mandatory, exclusive and reasonable procedures to resolve issues between the trustee and interested persons or among interested persons with regard to the administration or distribution of the trust. 14-10301. Representation Sections 14-1404, 14-1405, 14-1406, 14-1407 and 14-1408 apply to trusts governed by this chapter. 14-10302. Appointment of representative A. If the court determines that a beneficiary's interest is not represented under this chapter or that the otherwise available representation might be inadequate, the court may appoint a representative to receive notice, give consent and otherwise represent, bind and act on behalf of a minor, incapacitated person, unborn child or person whose identity or location is unknown. The court may appoint a representative for several persons or interests. B. A representative appointed under this section may act on behalf of the person represented with respect to any matter arising under this title, whether or not a judicial proceeding concerning the trust is pending. C. In making decisions, a representative may consider general benefit accruing to the living members of the family of the person represented. D. The court's authority to appoint a representative under this section is in addition to its authority to appoint a guardian ad litem under section 14-1408. 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. 14-10402. Requirements for creation A. Except as provided in section 14-5409, a trust is created only if all of the following are true: 1. The settlor has capacity to create a trust. 2. The settlor indicates an intention to create the trust. 3. The trust has a definite beneficiary or is: (a) A charitable trust. (b) A trust for the care of an animal, as provided in section 14-10408. (c) A trust for a noncharitable purpose, as provided in section 14-10409. 4. The trustee has duties to perform. 5. The same person is not the sole trustee and sole beneficiary. B. A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities. C. A power in a trustee or other person to select a beneficiary from an indefinite class is valid. If the power is not exercised within a reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the power not been conferred. 14-10403. Trusts created in other jurisdictions A trust not created by will is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed or the law of the jurisdiction in which, at the time of creation, either: 1. The settlor was domiciled, had a place of abode or was a national. 2. A trustee was domiciled or had a place of business. 3. Any trust property was located. 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. 14-10405. Charitable purposes; enforcement A. A charitable trust may be created for the relief of poverty, the advancement of education, religion or science, the promotion of health, governmental or municipal purposes or other purposes, the achievement of which is beneficial to the community, or for the support of one or more organizations that have the purposes prescribed in this section exclusively. B. If the terms of a charitable trust do not indicate a particular charitable purpose or beneficiary, the court may select one or more charitable purposes or beneficiaries. The selection must be consistent with the settlor's intention to the extent it can be ascertained. C. The settlor of a charitable trust, among others, may maintain a proceeding to enforce the trust. 14-10406. Creation of trust induced by fraud, duress or undue influence A trust is void, in whole or in part, to the extent its creation was induced by fraud, duress or undue influence. 14-10407. Evidence of oral trust Except as required by a statute other than this chapter, a trust need not be evidenced by a trust instrument, but the creation of an oral trust shall be established only by clear and convincing evidence and the terms of the oral trust shall be established by a preponderance of the evidence. If a trust is created by written instrument, it may be amended or revoked only by written instrument executed by the settlor. 14-10408. Trust for care of animal A. A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates on the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, on the death of the last surviving animal. B. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed. C. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, or otherwise to the settlor's successors in interest. 14-10409. Noncharitable trust without ascertainable beneficiary Except as otherwise provided in section 14-10408 or by another statute, the following rules apply: 1. A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee, provided that the trust may not be enforced for more than ninety years after its creation. 2. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. 3. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, or otherwise to the settlor's successors in interest. 14-10410. Modification or termination of trust; proceedings for approval or disapproval A. In addition to the methods of termination prescribed by sections 14-10411, 14-10412, 14-10413 and 14-10414, a trust terminates to the extent the trust is revoked or expires pursuant to its terms, no purpose of the trust remains to be achieved or the purposes of the trust have become unlawful, contrary to public policy or impossible to achieve. B. A proceeding to approve or disapprove a proposed modification or termination under sections 14-10411, 14-10412, 14-10413, 14-10414, 14-10415 and 14-10416, or trust combination or division under section 14-10417, may be commenced by a trustee or beneficiary. The settlor of a charitable trust may maintain a proceeding to modify the trust under section 14-10413. 14-10411. Modification or termination of noncharitable irrevocable trust by consent A. A noncharitable irrevocable trust may be terminated on consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified on consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust. B. On termination of a trust under subsection A, the trustee shall distribute the trust property as agreed by the beneficiaries. C. If not all of the beneficiaries consent to a proposed modification or termination of the trust under subsection A, the modification or termination may be approved by the court if the court is satisfied that: 1. If all of the beneficiaries had consented, the trust could have been modified or terminated under this section. 2. The interests of a beneficiary who does not consent will be adequately protected. 14-10412. Modification or termination because of unanticipated circumstances or inability to administer trust effectively A. The court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust. To the extent practicable, the modification must be made in accordance with the settlor's probable intention. B. The court may modify the administrative terms of a trust if continuation of the trust on its existing terms would be impracticable or wasteful or would impair the trust's administration. C. On termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust. 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. 14-10414. Modification or termination of uneconomic trust A. After notice to the qualified beneficiaries, the trustee of a trust that consists of trust property having a total value of less than one hundred thousand dollars or that is uneconomic to administer may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration. This subsection does not apply to an interested trustee as defined in section 14-11014. B. The court may modify or terminate a trust or remove the trustee and appoint a different trustee if it determines that the value of the trust property is insufficient to justify the cost of administration. C. On termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust. D. This section does not apply to an easement for conservation or preservation. 14-10415. Reformation to correct mistakes The court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intention if it is proved by clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. 14-10416. Modification to achieve settlor's tax objectives To achieve the settlor's tax objectives, the court may modify the terms of a trust in a manner that is not contrary to the settlor's probable intention. The court may provide that the modification has retroactive effect. 14-10417. Combination and division of trusts Unless the trust instrument provides that notice is not required, after notice to the qualified beneficiaries, a trustee may combine two or more trusts into a single trust or divide a trust into two or more separate trusts, if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust. 14-10418. Name change The trustee may modify a trust agreement to change the name of the trustee or beneficiary if the trustee or beneficiary's name has been legally changed. 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. B. The exception prescribed in subsection A is unenforceable against a special needs trust. C. A spendthrift provision is unenforceable against a claim of this state or the United States only to the extent a statute of this state or federal law so provides. D. For the purposes of this section, "child" includes any person for whom an order or judgment for child support has been validly entered in this or another state. 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 or to the extent that any creditor of the beneficiary takes through the name or rights of the beneficiary. D. Whether or not a trust contains a spendthrift provision: 1. A creditor of a trust beneficiary may not compel a distribution from insurance proceeds payable to the trustee as beneficiary to the extent state law exempts the insurance proceeds from creditors' claims if it had been paid directly to the trust beneficiary. 2. To the extent that under Arizona law life insurance proceeds, policy cash surrender values or other distributions or payments are exempt from attachment or garnishment by, execution on or otherwise the reach of creditors, if the death benefit is payable to an individual beneficiary, the life insurance proceeds, policy cash surrender values or other distributions or payments are also exempt from attachment or garnishment by, execution on or otherwise the reach of creditors if payable to a trust of which a beneficiary is that individual. 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 or similar language within the meaning of section 2041(b)(1)(a) of the internal revenue code. F. For the purposes of this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state. 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. If a trust has more than one settlor or contributor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution. This paragraph does not abrogate otherwise applicable laws relating to community property. 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. If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution. This paragraph does not apply to any trust from which any distribution to the settlor can be made pursuant to the exercise of a power of appointment held by a third party or abrogate otherwise applicable laws relating to community property. A creditor of a settlor: (a) Shall not reach any trust property based on a trustee's, trust protector's or third party's power, whether or not discretionary, to pay or reimburse the settlor for any income tax on trust income or trust principal that is payable by the settlor under the law imposing the tax or to pay the tax directly to any taxing authority. (b) Is not entitled to any payment or reimbursement that is to be made directly to any taxing authority. (c) Shall not reach or compel distributions to or for the benefit of the beneficiary of a special needs trust. 3. After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains and statutory allowances to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses and allowances, except to the extent that state or federal law exempts any property of the trust from these claims, costs, expenses or allowances. If a trust has more than one settlor or contributor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution. This paragraph does not abrogate otherwise applicable laws relating to community property. B. For the purposes of this section: 1. During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power. 2. On the lapse, release or waiver of a power of withdrawal, the holder is not, by reason of any such power of withdrawal, treated as the settlor of the trust. C. For the purposes of this section, a trust settled or established by a corporation, professional corporation, partnership, limited liability company, governmental entity, trust, foundation or other entity is not deemed to be settled or established by its directors, officers, shareholders, partners, members, managers, employees, beneficiaries or agents. D. For the purposes of this section, amounts contributed to a trust by a corporation, professional corporation, partnership, limited liability company, governmental entity, trust, foundation or other entity are not deemed to have been contributed by its directors, officers, shareholders, partners, employees, beneficiaries or agents. Powers, duties or responsibilities granted to or reserved by the settlor pursuant to the trust and any actions or omissions taken pursuant to the trust are deemed to be the powers, responsibilities, duties, actions or omissions of the settlor and not those of its directors, officers, shareholders, partners, members, managers, employees, beneficiaries or agents. E. For the purposes of this section, amounts and property contributed to the following trusts are not deemed to have been contributed by the settlor, and a person who would otherwise be treated as a settlor or a deemed settlor of the following trusts shall not be treated as a settlor: 1. An irrevocable inter vivos marital trust that is treated as qualified terminable interest property under section 2523(f) of the internal revenue code if the settlor is a beneficiary of the trust after the death of the settlor's spouse. 2. An irrevocable inter vivos marital trust that is treated as a general power of appointment trust under section 2523(e) of the internal revenue code if the settlor is a beneficiary of the trust after the death of the settlor's spouse. 3. An irrevocable inter vivos trust for the settlor's spouse if the settlor is a beneficiary of the trust after the death of the settlor's spouse. 4. An irrevocable trust for the benefit of a person, the settlor of which is the person's spouse, regardless of whether or when the person was the settlor of an irrevocable trust for the benefit of that spouse. 5. An irrevocable trust for the benefit of a person to the extent that the property of the trust was subject to a general power of appointment in another person. F. For the purposes of subsection E, a person is a beneficiary whether so named under the initial trust instrument or through the exercise by that person's spouse or by another person of a limited or general power of appointment. G. Subsections C and D do not apply to: 1. A trust that has no valid business purpose and that has as its principal purpose the evasion of the claims of the creditors of the persons or entities listed in those subsections. 2. A trust that would be treated as a grantor trust pursuant to sections 671 through 679 of the internal revenue code. This paragraph does not apply to a qualified subchapter S trust that is treated as a grantor trust solely by application of section 1361(d) of the internal revenue code. 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 if the trustee has not made the distribution to the beneficiary within a reasonable period 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 amount for a stated age, a distribution to be made pursuant to the exercise of a power of withdrawal and 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. 14-10507. Personal obligations of trustee Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt. 14-10602. Revocation or amendment of revocable trust A. Unless the terms of a trust expressly provide that the trust is irrevocable, a settlor may revoke or amend the trust subject to any limitations prescribed in the terms of the trust. B. If a revocable trust is created or funded by more than one settlor: 1. To the extent the trust consists of community property, the trust may be revoked by either spouse acting alone as to that spouse's share of the community property but may be amended only by joint action of both spouses. 2. To the extent the trust consists of property other than community property, each settlor may revoke or amend the trust with regard the portion of the trust property attributable to that settlor's contribution. C. The settlor may revoke or amend a revocable trust either: 1. By substantial compliance with a method provided in the terms of the trust. 2. If the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by either: (a) A later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust. (b) Any other writing signed by the settlor manifesting clear and convincing evidence of the settlor's intent. D. On revocation of a revocable trust, the trustee shall deliver the trust property as the settlor directs. E. A settlor's powers with respect to revocation, amendment or distribution of trust property may be exercised by an agent under a power of attorney only to the extent expressly authorized by the terms of the trust or, if the terms of the trust do not prohibit an agent from exercising powers on behalf of the settlor, to the extent expressly authorized under the power of attorney. If an agent is not so authorized and the terms of the trust do not prohibit a conservator from exercising powers on behalf of a settlor, a settlor's power to revoke, amend or distribute may be exercised by the settlor's conservator with the approval of the court supervising the conservatorship or by the settlor's guardian with the approval of the court supervising the guardianship if an agent is not so authorized and a conservator has not been appointed. F. A trustee who does not have actual knowledge that a trust has been revoked or amended is not liable to the settlor or settlor's successors in interest for distributions made and other actions taken on the assumption that the trust had not been amended or revoked. 14-10603. Settlor's powers; powers of withdrawal A. While a trust is revocable by the settlor, the rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor. B. During the period a power of withdrawal may be exercised, the holder of the power has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power. 14-10604. Limitation on actions contesting validity or revocable trust; distribution of trust property A. A person may commence a judicial proceeding to contest the validity of a trust that was revocable at the settlor's death within the earlier of: 1. One year after the settlor's death. 2. Four months after the trustee sent the person a copy of the trust instrument and a notice informing the person of the trust's existence, of the trustee's name and address and of the time allowed for commencing a proceeding. B. On the death of the settlor of a trust that was revocable at the settlor's death, the trustee may proceed to distribute the trust property in accordance with the terms of the trust. The trustee is not subject to liability for doing so unless either: 1. The trustee has actual knowledge of a pending judicial proceeding contesting the validity of the trust. 2. A potential contestant has notified the trustee in writing of a possible judicial proceeding to contest the trust and a judicial proceeding is commenced within sixty days after the contestant sent the notification. C. A beneficiary of a trust that is determined to have been invalid is liable to return any distribution received except to the extent that the beneficiary is a bona fide purchaser for value without notice. 14-10701. Accepting or declining trusteeship A. Except as otherwise provided in subsection C, a person designated as trustee accepts the trusteeship either: 1. By substantially complying with a method of acceptance provided in the terms of the trust. 2. If the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by accepting delivery of the trust property, exercising powers or performing duties as trustee or otherwise indicating acceptance of the trusteeship. B. A person designated as trustee who has not yet accepted the trusteeship may reject the trusteeship. A designated trustee who does not accept the trusteeship within a reasonable time after knowing of the designation is deemed to have rejected the trusteeship. C. A person designated as trustee, without accepting the trusteeship, may: 1. Act to preserve the trust property if, within a reasonable time after acting, the person sends a rejection of the trusteeship to the settlor or, if the settlor is dead or lacks capacity, to a qualified beneficiary. 2. Inspect or investigate trust property to determine potential liability under environmental or other law or for any other purpose. 14-10702. Trustee's bond A. A trustee shall give bond to secure performance of the trustee's duties only if the court finds that a bond is needed to protect the interests of the beneficiaries or is required by the terms of the trust and the court has not dispensed with the requirement. B. The court may specify the amount of a bond, its liabilities and whether sureties are necessary. The court may modify or terminate a bond at any time. C. Notwithstanding the terms of the trust, the following are not required to give a bond: 1. A national banking association. 2. A holder of a banking permit under the laws of this state. 3. A savings and loan association authorized to conduct trust business in this state. 4. A title insurance company qualified to do business under the laws of this state. 5. A trust company holding a certificate to engage in trust business from the state superintendent of banks. 6. The public fiduciary. 14-10703. Cotrustees A. Cotrustees who are unable to reach a unanimous decision may act by majority decision. B. If a vacancy occurs in a cotrusteeship, the remaining cotrustees may act for the trust. C. A cotrustee must participate in the performance of a trustee's function unless the cotrustee is unavailable to perform the function because of absence, illness, disqualification under other law or other temporary incapacity or the cotrustee has properly delegated the performance of the function to another trustee. D. If a cotrustee is unavailable to perform duties because of absence, illness, disqualification under other law or other temporary incapacity, and prompt action is necessary to achieve the purposes of the trust or to avoid injury to the trust property, the remaining cotrustee or a majority of the remaining cotrustees may act for the trust. E. A trustee may delegate to a cotrustee the performance of a function unless the terms of the trust provide that the trustees perform jointly. Unless a delegation was irrevocable, a trustee may revoke a delegation previously made. F. Except as otherwise provided in subsection G, a trustee who does not join in an action of another trustee is not liable for the action. G. Each trustee shall exercise reasonable care to: 1. Prevent a cotrustee from committing a material breach of trust. 2. Compel a cotrustee to redress a material breach of trust. H. A dissenting trustee who joins in an action at the direction of the majority of the trustees and who notified any cotrustee of the dissent at or before the time of the action is not liable for the action unless the action is a material breach of trust. 14-10704. Vacancy in trusteeship; appointment of successor A. A vacancy in a trusteeship occurs if: 1. A person designated as trustee rejects the trusteeship. 2. A person designated as trustee cannot be identified or does not exist. 3. A trustee resigns. 4. A trustee is disqualified or removed. 5. A trustee dies. 6. A guardian or conservator is appointed for an individual serving as trustee. B. If one or more cotrustees remain in office, a vacancy in a trusteeship need not be filled. A vacancy in a trusteeship must be filled if the trust has no remaining trustee. C. A vacancy in a trusteeship of a noncharitable trust that is required to be filled must be filled in the following order of priority: 1. By a person designated in the terms of the trust to act as successor trustee or a person who is appointed by a person who has authority in the trust instrument to appoint a successor trustee. 2. By a person appointed by unanimous agreement of the qualified beneficiaries. 3. By a person appointed by the court. D. A vacancy in a trusteeship of a charitable trust that is required to be filled must be filled in the following order of priority: 1. By a person designated in the terms of the trust to act as successor trustee. 2. By a person selected by the charitable organizations expressly designated to receive distributions under the terms of the trust. 3. By a person appointed by the court. E. Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust. 14-10705. Resignation of trustee A. A trustee may resign either: 1. Unless the trust instrument provides otherwise, on at least thirty days' notice to the qualified beneficiaries, the settlor, if living, and all cotrustees. 2. With the approval of the court. B. In approving a resignation, the court may issue orders and impose conditions reasonably necessary for the protection of the trust property. C. Any liability of a resigning trustee or of any sureties on the trustee's bond for acts or omissions of the trustee is not discharged or affected by the trustee's resignation. 14-10706. Removal of trustee A. The settlor, a cotrustee or a beneficiary may request the court to remove a trustee or a trustee may be removed by the court on its own initiative. B. The court may remove a trustee if: 1. The trustee has committed a material breach of trust. 2. Lack of cooperation among cotrustees substantially impairs the administration of the trust. 3. Because of unfitness, unwillingness or persistent failure of the trustee to administer the trust for the benefit of the beneficiaries, the court determines that removal of the trustee best serves the interests of the beneficiaries. 4. There has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust and a suitable cotrustee or successor trustee is available. C. Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order appropriate relief under section 14-11001, subsection B as may be necessary to protect the trust property or the interests of the beneficiaries. D. On petition of a beneficiary who is also a settlor of a trust, including a beneficiary for whom a guardian or conservator has been appointed, the court shall substitute a trustee and appoint a successor if the substitution is in the best interest of the beneficiary. The trustee and the trustee's attorney may be compensated from the trust for defending against a petition for substitution only for the amount ordered by the court and on petition by the trustee or the trustee's attorney. When substituting a trustee and appointing a successor, the court may appoint an individual nominated by the beneficiary if the beneficiary has, in the opinion of the court, sufficient mental capacity to make an intelligent choice. 14-10707. Delivery of property by former trustee A. Unless a cotrustee remains in office or the court otherwise orders, and until the trust property is delivered to a successor trustee or other person entitled to it, a trustee who has resigned or been removed has the duties of a trustee and the powers necessary to protect the trust property. B. A trustee who has resigned or been removed shall proceed expeditiously to deliver the trust property in the trustee's possession to the cotrustee, successor trustee or other person entitled to it. 14-10708. Compensation of trustee A. If the terms of a trust do not specify the trustee's compensation, a trustee is entitled to compensation that is reasonable under the circumstances. B. If the terms of a trust specify the trustee's compensation or refer to another ascertainable source for determining that compensation, the trustee is entitled to be compensated as specified, but the court may allow more or less compensation if either: 1. The duties of the trustee are substantially different from those contemplated when the trust was created. 2. The compensation specified by the terms of the trust would be unreasonably low or high. 14-10709. Reimbursement of expenses A. A trustee is entitled to be reimbursed out of the trust property, with reasonable interest, for: 1. Expenses that were properly incurred in the administration of the trust. 2. To the extent necessary to prevent unjust enrichment of the trust, expenses that were not properly incurred in the administration of the trust. B. An advance by the trustee of money for th