New Trust Updates Needed for the New Arizona Trust Code

The Arizona Trust Code becomes effective on January 1, 2009. There are some exciting new laws that give our judicial officers guidelines for determining trust disputes. However, trust agreements need to be amended so that the new guidelines do not create unintended problems for old trusts.

For example, the new laws require the Trustee to disclose considerable information to beneficiaries of irrevocable trusts. Even if one of the creators of the trust, or Settlor, is still alive, children and/or grandchildren may be able to find out the value of irrevocable trust assets and how trust monies are spent. Trust agreements can be amended to give the Trustee discretion on how much information to disclose. However, without the amendment, the Trustee will be required to give information that previously younger generations could not obtain.

Trust agreements can now require alternative dispute resolution, or ADR, for disputes about trust administration. Thus, an argumentative beneficiary cannot cause expensive litigation, if the trust agreement provides for ADR. Since courts have had the discretion to disregard "no contest" clauses, ADR provisions enhance the ability to limit costly disputes.

Courts are now authorized to allow for the termination or modification of a trust if all the beneficiaries agree. However, the court needs to look at the Settlor's intent. Therefore, a trust agreement needs to set out the Settlor's intent and goals in order to limit unwanted changes to a trust.

A trustee can terminate an irrevocable trust that has value of less than $100,000 or is otherwise uneconomic to administer. If such a termination is undesirable, then the trust agreement must prohibit it.

The new laws also extend creditor protection to life insurance paid to a trust, just as if it were paid directly to a beneficiary. Thus, this is a good time to make sure that the beneficiary of your life insurance is your trust; particularly if you have beneficiaries who are minors.

These are just a highlight of some of the more profound changes under the Arizona Trust Code. This is a good time to review trust agreements to make sure they conform with the new laws as well as updating them for other changes. For example, if one or more of your successor trustees are no longer living or no longer close to you. If a beneficiary is having trouble with drugs, or needs motivation to work or obtain an education, trust provisions can be added to address this.

Also, there has been and will be further changes in the amount that can be passed estate tax free. Provisions can be added to allow flexibility with the changes in tax laws.

Anyone who owns a business should make sure that the business is owned by the trust. If the shares of a corporation or membership interest of an LLC are held in the name of the trust, then court involvement will not be needed if you become incapacitated or upon your death. There is no time like the present to consider these and other needs for updating your trust agreement.