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| Home > Statutes > Usa Arizona |
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USA Statutes : arizona
Title : Trusts, Estates and Protective Proceedings
Chapter : TRUST ADMINISTRATION
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14-7201 Court; exclusive jurisdiction of trusts
A. The court has exclusive jurisdiction of proceedings initiated by interested
parties concerning the internal affairs of trusts. Proceedings which may be maintained
under this section are those concerning the administration and distribution of trusts,
the declaration of rights and the determination of other matters involving trustees and
beneficiaries of trusts. These include, but are not limited to, proceedings to:
1. Appoint or remove a trustee.
2. Review trustees' fees and review and settle interim or final accounts.
3. Ascertain beneficiaries, determine any question arising in the administration or
distribution of any trust including questions of construction of trust instruments,
instruct trustees and determine the existence or nonexistence of any immunity, power,
privilege, duty or right.
4. Order transfer of administration of the trust to another state upon appropriate
conditions as may be determined by the court, or accept transfer of administration of a
trust from another state to this state upon such conditions as may be imposed by the
supervising court of the other state, unless the court in this state determines that such
conditions are incompatible with its own rules and procedures.
B. A proceeding under this section does not result in continuing supervision by the
court over the administration of the trust. The management and distribution of a trust
estate, submission of accounts and reports to beneficiaries, payment of trustee's fees
and other obligations of a trust, acceptance and change of trusteeship and other aspects
of the administration of a trust shall proceed expeditiously consistent with the terms of
the trust, free of judicial intervention and without order, approval or other action of
any court, subject to the jurisdiction of the court as invoked by interested parties or
as otherwise exercised as provided by law. 14-7202 Effect of administration in this state; consent to jurisdiction
A. By accepting the trusteeship of a trust of which the principal place of
administration is in this state, or by moving the principal place of administration of a
trust to this state, the trustee submits personally to the jurisdiction of the courts of
this state in any proceeding under section 14-7201 as to any matter relating to the trust
arising while the principal place of administration is located in this state.
B. To the extent of the beneficial interests in a trust of which the principal
place of administration is in this state, the beneficiaries of the trust are subject to
the jurisdiction of the courts of this state for purposes of proceedings under section
14-7201.
C. Unless otherwise designated in the trust instrument, the principal place of
administration of a trust is the trustee's usual place of business where the records
pertaining to the trust are kept, or at the trustee's residence if he has no such place
of business. In the case of co-trustees, the principal place of administration, if not
otherwise designated in the trust instrument, is:
1. The usual place of business of the corporate trustee if there is but one
corporate co-trustee.
2. The usual place of business or residence of the individual trustee who is a
professional fiduciary if there is but one such person and no corporate co-trustee.
3. The usual place of business or residence of any of the co-trustees as agreed
upon by them. 14-7203 Trust proceedings; venue
Venue for proceedings under section 14-7201 is in the county where the trust has its
principal place of administration of the trust, or as otherwise provided by the rules of
civil procedure. 14-7204 Trust proceedings; initiation by notice; necessary parties
Proceedings under section 14-7201 are initiated by filing a petition in the court
and giving notice pursuant to section 14-1401 to interested parties. Notice to the
trustee by mail may be addressed to him at the principal place of administration of the
trust as defined in section 14-7202, subsection C. The court may order notification of
additional persons. A decree is valid as to all who are given notice of the proceeding
though fewer than all interested parties are notified. 14-7205 Trust proceedings; dismissal of matters relating to foreign trusts
The court will not, over the objection of a party, entertain proceedings under
section 14-7201 involving a trust which is under the continuing supervision of a foreign
court, is registered in another state or has its principal place of business in another
state, except:
1. If all appropriate parties could not be bound by litigation in the courts of the
other state.
2. If the interests of justice would be seriously impaired. The court may
condition a stay or dismissal of a proceeding on the consent of any party to the
jurisdiction of the courts of another state, or the court may grant a continuance or
enter any other appropriate order. 14-7206 Proceedings for review of employment of agents and review of compensation of trustee and employees of trust
On petition of an interested person, after notice to all interested persons, the
court may review the propriety of employment of any person by a trustee including any
attorney, auditor, investment advisor or other specialized agent or assistant, and the
reasonableness of the compensation of any person so employed, and the reasonableness of
the compensation determined by the trustee for his own services. Any person who has
received excessive compensation from a trust may be ordered to make appropriate refunds. 14-7207 Concurrent jurisdiction of litigation involving trusts and third parties
The court of the place of principal administration of the trust has concurrent
jurisdiction with other courts of this state over actions or proceedings to determine the
existence or nonexistence of trusts created other than by will, of actions by or against
creditors or debtors of trusts, and of other actions and proceedings involving trustees
and third parties. Venue is determined by the rules generally applicable to civil
actions. 14-7231 Definitions
In this article, unless the context otherwise requires:
1. "Prudent man" means a trustee whose exercise of trust powers is reasonable and
equitable in view of the interests of income or principal beneficiaries, or both, and in
view of the manner in which men of ordinary prudence, diligence, discretion and judgment
would act in the management of the property of others.
2. "Trust" means an express trust created by a trust instrument including a will,
by which a trustee has the duty to administer a trust asset for the benefit of a named or
otherwise described income or principal beneficiary, or both. Trust does not include a
resulting or constructive trust, a business trust which provides for certificates to be
issued to the beneficiary, an investment trust, a voting trust, a security instrument, a
trust created by the judgment or decree of a court, a liquidation trust or a trust for
the primary purpose of paying dividends, interest, interest coupons, salaries, wages,
pensions or profits, or employee benefits of any kind, an instrument in which a person is
nominee or escrowee for another, a trust created in deposits in any financial institution
or other trust the nature of which does not admit of general trust administration.
3. "Trustee" means an original, added or successor trustee. 14-7232 Powers of trustee conferred by trust or by law
A. The trustee has all powers conferred on him by the provisions of this article
unless limited in the trust instrument.
B. An instrument which is not a trust under section 14-7231, paragraph 3 may
incorporate any part of this article by reference. 14-7233 Powers of trustees conferred by this article
A. From the time of creation of the trust until final distribution of the assets of
the trust, a trustee has the power to perform, without court authorization, every act
which a prudent man dealing with the property of another would perform for the purposes
of the trust including but not limited to the powers specified in subsection C of this
section.
B. In the exercise of his powers including the powers granted by this article, a
trustee is subject to the standards provided in section 14-7302 and has a duty to act
with due regard to his obligation as a fiduciary.
C. A trustee has the power, subject to subsections A and B of this section, to:
1. Collect, hold and retain trust assets received from a trustor until, in the
judgment of the trustee, disposition of the assets should be made. The assets may be
retained even though they include an asset in which the trustee is personally interested.
2. Receive additions to the assets of the trust.
3. Continue or participate in the operation of any business or other enterprise and
to effect incorporation, dissolution or other change in the form of the organization of
the business or enterprise.
4. Acquire an undivided interest in a trust asset in which the trustee, in any
trust capacity, holds an undivided interest.
5. Invest and reinvest trust assets in accordance with the provisions of the trust
or as provided by law.
6. Deposit trust funds in a bank or savings and loan association, including a bank
or savings and loan association operated by the trustee.
7. Acquire or dispose of an asset, for cash or on credit, at public or private
sale, to manage, develop, improve, exchange, partition, change the character of or
abandon a trust asset or any interest in a trust asset and to encumber, mortgage or
pledge a trust asset for a term within or extending beyond the term of the trust, in
connection with the exercise of any power vested in the trustee.
8. Make ordinary or extraordinary repairs or alterations in buildings or other
structures, to demolish any improvements and to raze existing or erect new party walls or
buildings.
9. Subdivide, develop or dedicate land to public use, to make or obtain the
vacation of plats and adjust boundaries, to adjust differences in valuation on exchange
or partition by giving or receiving consideration or to dedicate easements to public use
without consideration.
10. Enter for any purpose into a lease as lessor or lessee with or without option to
purchase or renew for a term within or extending beyond the term of the trust.
11. Enter into a lease or arrangement for exploration and removal of minerals or
other natural resources or enter into a pooling or unitization agreement.
12. Grant an option involving disposition of a trust asset or to take an option for
the acquisition of any asset.
13. Vote a security in person or by general or limited proxy.
14. Pay assessments and any other amounts chargeable or accruing against or on
account of securities.
15. Sell or exercise stock subscription or conversion rights or to consent, directly
or through a committee or other agent, to the reorganization, consolidation, merger,
dissolution or liquidation of a corporation or other business enterprise.
16. Hold a security in the name of a nominee or in other form without disclosure of
the trust, so that title to the security may pass by delivery, but the trustee is liable
for any act of the nominee in connection with the stock so held.
17. Insure the assets of the trust against damage or loss and the trustee against
liability with respect to third persons.
18. Borrow money to be repaid from trust assets or otherwise, to advance money for
the protection of the trust, and for all expenses, losses and liabilities sustained in
the administration of the trust or because of the holding or ownership of any trust
assets, for which advances with any interest the trustee has a lien on the trust assets
as against the beneficiary.
19. Pay or contest any claim, to settle a claim by or against the trust by
compromise, arbitration or otherwise and to release, in whole or in part, any claim
belonging to the trust to the extent that the claim is uncollectible.
20. Pay taxes, assessments, compensation of the trustee and other expenses incurred
in the collection, care, administration and protection of the trust.
21. Allocate items of income or expense to either trust income or principal, as
provided in article 4 of this chapter.
22. Pay any sum distributable to a beneficiary under legal disability, without
liability to the trustee, by paying the sum to the beneficiary or by paying the sum for
the use of the beneficiary either to a legal representative appointed by the court or, if
none, to a relative.
23. Effect distribution of property and money in divided or undivided interests and
to adjust resulting differences in valuation.
24. Employ persons, including attorneys, auditors, investment advisors or agents,
even if they are associated with the trustee, to advise or assist the trustee in the
performance of his administrative duties, to act without independent investigation on
their recommendations and, instead of acting personally, to employ one or more agents to
perform any act of administration, whether or not discretionary.
25. Prosecute or defend actions, claims or proceedings for the protection of trust
assets and of the trustee in the performance of his duties.
26. Execute and deliver all instruments which will accomplish or facilitate the
exercise of the powers vested in the trustee.
D. If a governing instrument or order requires or authorizes investment in United
States government obligations, a trustee may invest in these obligations either directly
or in the form of securities of or other interests in any open-end or closed-end
management type investment company or investment trust registered under the provisions of
the investment company act of 1940, as amended, (54 Stat. 789; 15 United States Code
sections 80a-1 through 80a-64) if both of the following are true:
1. The portfolio of the investment company or investment trust is limited to United
States government obligations and repurchase agreements fully collateralized by United
States government obligations.
2. The investment company or investment trust takes delivery of the collateral for
any repurchase agreement either directly or through an authorized custodian. 14-7234 Trustee's office not transferable
The trustee shall not transfer his office to another or delegate the entire
administration of the trust to a cotrustee or another. 14-7235 Power of court to permit deviation or to approve transactions involving conflict of interest
A. This article does not affect the power of a court of competent jurisdiction for
cause shown, upon petition of the trustee or affected beneficiary and on appropriate
notice to the affected parties, to relieve a trustee from any restrictions on his power
that would otherwise be placed on him by the trust or by this article.
B. If the duty of the trustee and his individual interest or his interest as
trustee of another trust conflict in the exercise of a trust power, the power may be
exercised only by court authorization, except as provided in section 14-7233, subsection
C, paragraphs 1, 4, 6, 18 and 24, on petition of the trustee. Under this section,
personal profit or advantage to an affiliated or subsidiary company or association is
personal profit to any corporate trustee. 14-7236 Powers exercisable by joint trustees; liability
A. Any power vested in three or more trustees may be exercised by a majority, but a
trustee who has not joined in exercising a power is not liable to the beneficiaries or to
others for the consequences of the exercise and a dissenting trustee is not liable for
the consequences of an act in which he joins at the direction of the majority of the
trustees, if he expressed his dissent in writing to any of his cotrustees at or before
the time of the joinder.
B. If two or more trustees are appointed to perform a trust and if any of them is
unable or refuses to accept the appointment, or, having accepted, ceases to be a trustee,
the surviving or remaining trustees shall perform the trust and succeed to all the
powers, duties and discretionary authority given to the trustees jointly.
C. This section does not excuse a cotrustee from liability for failure either to
participate in the administration of the trust or to attempt to prevent a breach of
trust. 14-7237 Third persons protected in dealing with trustee
With respect to a third person dealing with a trustee or assisting a trustee in the
conduct of a transaction, the existence of trust powers and their proper exercise by the
trustee may be assumed without inquiry. The third person is not bound to inquire whether
the trustee has power to act or is properly exercising the power and a third person,
without actual knowledge that the trustee is exceeding his powers or improperly
exercising them, is fully protected in dealing with the trustee as if the trustee
possessed and properly exercised the powers he purports to exercise. A third person is
not bound to assure the proper application of trust assets paid or delivered to the
trustee. 14-7301 General duties not limited
Except as specifically provided, the general duty of the trustee to administer a
trust expeditiously for the benefit of the beneficiaries is not altered by this title. 14-7302 Trustee's standard of care and performance
Except as otherwise provided by the terms of the trust and except as provided by
chapter 7, article 6 of this title, the trustee shall observe the standard in dealing
with the trust assets that would be observed by a prudent man dealing with the property
of another, and if the trustee has special skills or is named trustee on the basis of
representations of special skills or expertise, he is under a duty to use those skills. 14-7303 Duty to inform and account to beneficiaries
The trustee shall keep the beneficiaries of the trust reasonably informed of the
trust and its administration. In addition:
1. Within thirty days after his acceptance of the trust, the trustee shall inform
in writing the beneficiaries currently entitled to receive income, of the trustee's name
and address.
2. Upon reasonable request, the trustee shall provide the beneficiary with a copy
of the terms of the trust which describe or affect his interest and with relevant
information about the assets of the trust and the particulars relating to the
administration.
3. Upon reasonable request, a beneficiary is entitled to a statement of the
accounts of the trust annually and on termination of the trust or change of the trustee. 14-7304 Duty to provide bond
A trustee need not provide bond to secure performance of his duties unless required
by the terms of the trust, reasonably requested by a beneficiary or found by the court to
be necessary to protect the interests of the beneficiaries who are not able to protect
themselves and whose interests otherwise are not adequately represented. On petition of
the trustee or other interested person the court may excuse a requirement of bond, reduce
the amount of the bond, release the surety or permit the substitution of another bond
with the same or different sureties. If bond is required, it shall be filed in the court
of the county where the trust has its principal place of administration, or other
appropriate court, in amounts and with sureties and liabilities as provided in sections
14-3604 and 14-3606 relating to bonds of personal representatives. 14-7305 Trustee's duties; appropriate place of administration; deviation
A trustee is under a continuing duty to administer the trust at a place appropriate
to the purposes of the trust and to its sound, efficient management. If the principal
place of administration becomes inappropriate for any reason, the court may enter any
order furthering efficient administration and the interests of beneficiaries, including,
if appropriate, removal of the trustee and appointment of a trustee in another
state. Trust provisions relating to the place of administration and to changes in the
place of administration or of trustee control unless compliance would be contrary to
efficient administration or the purposes of the trust. Views of adult beneficiaries
shall be given weight in determining the suitability of the trustee and the place of
administration. 14-7306 Personal liability of trustee to third parties
A. Unless otherwise provided in the contract, a trustee is not personally liable on
contracts properly entered into in his fiduciary capacity in the course of administration
of the trust estate unless he fails to reveal his representative capacity and identify
the trust estate in the contract.
B. A trustee is personally liable for obligations arising from ownership or control
of property of the trust estate or for torts committed in the course of administration of
the trust estate only if he is personally at fault.
C. Claims based on contracts entered into by a trustee in his fiduciary capacity,
on obligations arising from ownership or control of the trust estate, or on torts
committed in the course of trust administration may be asserted against the trust estate
by proceeding against the trustee in his fiduciary capacity, whether or not the trustee
is personally liable therefor.
D. The question of liability as between the trust estate and the trustee
individually may be determined in a proceeding for accounting, surcharge or
indemnification or other appropriate proceeding. 14-7307 Limitations on proceedings against trustees after final account
Unless previously barred by adjudication, consent or limitation, any claim against a
trustee for breach of trust is barred as to any beneficiary who has received a final
account or other statement fully disclosing the matter and showing termination of the
trust relationship between the trustee and the beneficiary unless a proceeding to assert
the claim is commenced within six months after receipt of the final account or
statement. In any event and notwithstanding lack of full disclosure a trustee who has
issued a final account or statement received by the beneficiary and has informed the
beneficiary of the location and availability of records for his examination is protected
after three years. A beneficiary is deemed to have received a final account or statement
if, being an adult, it is received by him personally or if, being a minor or disabled
person, it is received by his representative as described in section 14-1403, paragraph
2. 14-7308 Investments in name of nominee
A. Any state or national bank or title insurance company, when acting in this state
as a fiduciary or a cofiduciary with others, may with the consent of its cofiduciary or
cofiduciaries, if any, who are hereby authorized to give such consent, cause any
investment held in any such capacity, to be registered and held in the name of a nominee
or nominees of such bank or title insurance company. Such bank or title insurance
company shall be liable for the acts of any such nominee with respect to any investment
so registered.
B. The records of such bank or title insurance company shall at all times show the
ownership of any such investment, which investment shall be in the possession and control
of such bank or title insurance company and be kept separate and apart from the assets of
such bank or title insurance company, except that a state or national bank or title
insurance company may deposit stock or other securities so held in a clearing corporation
as defined in section 47-8102.
14-7401 Definitions
In this article, unless the context otherwise requires:
1. "Accounting period" means a calendar year unless another twelve month period is
selected by a fiduciary and includes a portion of a calendar year or other twelve month
period that begins when an income interest begins or ends when an income interest ends.
2. " Beneficiary" includes, in the case of a decedent's estate, an heir, legatee
and devisee and, in the case of a trust, an income beneficiary and a remainder
beneficiary.
3. "Fiduciary" means a personal representative or a trustee and includes an
executor, an administrator, a successor personal representative, a special administrator
and a person performing substantially the same function.
4. " Income" means money or property that a fiduciary receives as current return
from a principal asset and includes a portion of receipts from a sale, exchange or
liquidation of a principal asset, to the extent provided in sections 14-7410 through
14-7424.
5. " Income beneficiary" means a person to whom net income of a trust is or may be
payable.
6. " Income interest" means the right of an income beneficiary to receive all or
part of net income, whether the terms of the trust require it to be distributed or
authorize it to be distributed in the trustee's discretion.
7. " Mandatory income interest" means the right of an income beneficiary to receive
net income that the terms of the trust require the fiduciary to distribute.
8. " Net income" means the total receipts allocated to income during an accounting
period minus the disbursements made from income during the period, plus or minus
transfers under this article to or from income during the period.
9. " Person" means any individual, corporation, business trust, estate, trust,
partnership, limited liability company, association, joint venture, government,
governmental subdivision, agency or instrumentality, public corporation or other legal or
commercial entity.
10. " Principal" means property held in trust for distribution to a remainder
beneficiary when the trust terminates.
11. " Remainder beneficiary " means a person entitled to receive principal when an
income interest ends.
12. " Terms of a trust" means the manifestation of the intent of a settlor or
decedent with respect to the trust expressed in a manner that admits of its proof in a
judicial proceeding, whether by written or spoken words or by conduct.
13. " Trustee" includes an original, additional or successor trustee, whether or not
appointed or confirmed by a court. 14-7402 Fiduciary duties; general principles
A. In allocating receipts and disbursements to or between principal and income, and
with respect to any matter within the scope of sections 14-7405 through 14-7409, a
fiduciary:
1. Shall administer a trust or estate in accordance with the terms of the trust or
the will, even if there is a different provision in this article.
2. May administer a trust or estate by the exercise of a discretionary power of
administration given to the fiduciary by the terms of the trust or the will, even if the
exercise of the power produces a result different from a result required or permitted by
this article.
3. Shall administer a trust or estate in accordance with this article if the terms
of the trust or the will do not contain a different provision or do not give the
fiduciary a discretionary power of administration.
4. Shall add a receipt or charge a disbursement to principal to the extent that the
terms of the trust and this article do not provide a rule for allocating the receipt or
disbursement to or between principal and income.
B. In exercising the power to adjust under section 14-7403, subsection A or a
discretionary power of administration regarding a matter within the scope of this
article, whether granted by the terms of a trust, a will or this article, a fiduciary
shall administer a trust or estate impartially, based on what is fair and reasonable to
all of the beneficiaries, except to the extent that the terms of the trust or the will
clearly manifest an intention that the fiduciary shall or may favor one or more of the
beneficiaries. A determination in accordance with this article is presumed to be fair and
reasonable to all of the beneficiaries.
14-7403 Trustee's power to adjust
A. A trustee may adjust between principal and income to the extent the trustee
considers necessary if the trustee invests and manages trust assets as a prudent
investor, the terms of the trust describe the amount that may or must be distributed to a
beneficiary by referring to the trust's income and the trustee determines, after applying
the provisions of section 14-7402, subsection A, that the trustee is unable to comply
with section 14-7402, subsection B.
B. In deciding whether and to what extent to exercise the power conferred by
subsection A of this section, a trustee shall consider all factors relevant to the trust
and its beneficiaries, including the following factors to the extent they are relevant:
1. The nature, purpose and expected duration of the trust.
2. The intent of the settlor.
3. The identity and circumstances of the beneficiaries.
4. The need for liquidity, regularity of income and preservation and appreciation
of capital.
5. The assets held in the trust and:
(a) The extent to which:
(i) They consist of financial assets, interests in closely held enterprises,
tangible and intangible personal property or real property.
(ii) An asset is used by a beneficiary.
(b) Whether an asset was purchased by the trustee or received from the settlor.
6. The net amount allocated to income under this article and the increase or
decrease in the value of the principal assets, which the trustee may estimate as to
assets for which market values are not readily available.
7. Whether and to what extent the terms of the trust give the trustee the power to
invade principal or accumulate income or prohibit the trustee from invading principal or
accumulating income, and the extent to which the trustee has exercised a power from time
to time to invade principal or accumulate income.
8. The actual and anticipated effect of economic conditions on principal and income
and effects of inflation and deflation.
9. The anticipated tax consequences of an adjustment.
C. A trustee may not make an adjustment:
1. That diminishes the income interest in a trust that requires all of the income
to be paid at least annually to a spouse and for which an estate tax or gift tax marital
deduction would be allowed, in whole or in part, if the trustee did not have the power to
make the adjustment.
2. That reduces the actuarial value of the income interest in a trust to which a
person transfers property with the intent to qualify for a gift tax exclusion.
3. That changes the amount payable to a beneficiary as a fixed annuity or a fixed
fraction of the value of the trust assets.
4. From any amount that is permanently set aside for charitable purposes under a
will or the terms of a trust unless both income and principal are so set aside.
5. If possessing or exercising the power to make an adjustment causes an individual
to be treated as the owner of all or part of the trust for income tax purposes and the
individual would not be treated as the owner if the trustee did not possess the power to
make an adjustment.
6. If possessing or exercising the power to make an adjustment causes all or part
of the trust assets to be included for estate tax purposes in the estate of an individual
who has the power to remove a trustee or appoint a trustee, or both, and the assets would
not be included in the estate of the individual if the trustee did not possess the power
to make an adjustment.
7. If the trustee is a beneficiary of the trust.
8. If the trustee is not a beneficiary, but the adjustment would benefit the
trustee directly or indirectly.
D. If subsection C, paragraph 5, 6, 7 or 8 of this section applies to a trustee and
there is more than one trustee, a cotrustee to whom the provision does not apply may make
the adjustment unless the exercise of the power by the remaining trustee or trustees is
not permitted by the terms of the trust.
E. A trustee may release the entire power conferred by subsection A of this section
or may release only the power to adjust from income to principal or the power to adjust
from principal to income if the trustee is uncertain about whether possessing or
exercising the power will cause a result described in subsection C, paragraph 1, 2, 3, 4,
5, 6 or 8 of this section, or if the trustee determines that possessing or exercising the
power will or may deprive the trust of a tax benefit or impose a tax burden not described
in subsection C of this section. The release may be permanent or for a specified period,
including a period measured by the life of an individual.
F. Terms of a trust that limit the power of a trustee to make an adjustment between
principal and income do not affect the application of this section unless it is clear
from the terms of the trust that the terms are intended to deny the trustee the power of
adjustment conferred by subsection A of this section.
14-7404 Judicial control of discretionary powers A. A court shall not change a fiduciary's decision to exercise or not to exercise a discretionary power conferred by this article unless it determines that the decision was an abuse of the fiduciary's discretion. A court shall not determine that a fiduciary abused its discretion merely because the court would have exercised the discretion in a different manner or would not have exercised the discretion. B. The decisions to which subsection A of this section applies include: 1. A determination under section 14-7403, subsection A of whether and to what extent an amount should be transferred from principal to income or from income to principal. 2. A determination of the factors that are relevant to the trust and its beneficiaries, the extent to which they are relevant and the weight, if any, to be given to the relevant factors in deciding whether and to what extent to exercise the power conferred by section 14-7403, subsection A. C. If a court determines that a fiduciary has abused its discretion, the remedy is to restore the income and remainder beneficiaries to the positions they would have occupied if the fiduciary had not abused its discretion as follows: 1. To the extent that the abuse of discretion has not resulted in a distribution to a beneficiary or a distribution that is too small, the court shall require the fiduciary to distribute from the trust to the beneficiary an amount that the court determines will restore the beneficiary, in whole or in part, to that person's appropriate position. 2. To the extent that the abuse of discretion has resulted in a distribution to a beneficiary that is too large, the court shall restore the beneficiaries or the trust, or both, in whole or in part, to their appropriate positions by requiring the fiduciary to withhold an amount from one or more future distributions to the beneficiary who received the distribution that was too large or requiring that beneficiary to return some or all of the distribution to the trust. 3. To the extent that the court is unable, after applying paragraphs 1 and 2 of this subsection, to restore the beneficiaries or the trust, or both, to the positions they would have occupied if the fiduciary had not abused its discretion, the court may require the fiduciary to pay an appropriate amount from its own funds to one or more of the beneficiaries or the trust, or both. D. On a petition by the fiduciary, the court having jurisdiction over the trust or estate shall determine whether a proposed exercise or nonexercise by the fiduciary of a discretionary power conferred by this article will result in an abuse of the fiduciary's discretion. If the petition describes the proposed exercise or nonexercise of the power and contains sufficient information to inform the beneficiaries of the reasons for the proposal, the facts on which the fiduciary relies and an explanation of how the income and remainder beneficiaries will be affected by the proposed exercise or nonexercise of the power, a beneficiary who challenges the proposed exercise or nonexercise has the burden of establishing that it will result in an abuse of discretion. 14-7405 Determination and distribution of net income
After a decedent dies, in the case of an estate, or after an income interest in a
trust ends, the following apply:
1. A fiduciary of an estate or of a terminating income interest shall determine the
amount of net income and net principal receipts received from property specifically given
to a beneficiary pursuant to the provisions of sections 14-7407 through 14-7430 that
apply to trustees and paragraph 5 of this section. The fiduciary shall distribute the net
income and net principal receipts to the beneficiary who is to receive the specific
property.
2. A fiduciary shall determine the remaining net income of a decedent's estate or a
terminating income interest pursuant to the provisions of section 14-7407 through 14-7430
that apply to trustees and by:
(a) Including in net income all income from property used to discharge liabilities.
(b) Paying from income or principal, in the fiduciary's discretion, fees of
attorneys, accountants and fiduciaries, court costs and other expenses of administration
and interest on death taxes, but the fiduciary may pay those expenses from income of
property passing to a trust for which the fiduciary claims an estate tax marital or
charitable deduction only to the extent that the payment of those expenses from income
will not cause the reduction or loss of the deduction.
(c) Paying from principal all other disbursements made or incurred in connection
with the settlement of a decedent's estate or the winding up of a terminating income
interest, including debts, funeral expenses, disposition of remains, family allowances
and death taxes and related penalties that are apportioned to the estate or terminating
income interest by the will, the terms of the trust or applicable law.
3. A fiduciary shall distribute to a beneficiary who receives a pecuniary amount
outright the interest or any other amount provided by the will, the terms of the trust or
applicable law from net income determined under paragraph 2 of this section or from
principal to the extent that net income is insufficient. If a beneficiary is to receive
a pecuniary amount outright from a trust after an income interest ends and no interest or
other amount is provided for by the terms of the trust or applicable law, the fiduciary
shall distribute the interest or other amount to which the beneficiary would be entitled
under applicable law if the pecuniary amount were required to be paid under a will.
4. A fiduciary shall distribute the net income remaining after distributions
required by paragraph 3 of this section in the manner described in section 14-7406 to all
other beneficiaries, including a beneficiary who receives a pecuniary amount in trust,
even if the beneficiary holds an unqualified power to withdraw assets from the trust or
other presently exercisable general power of appointment over the trust.
5. A fiduciary may not reduce principal or income receipts from property described
in paragraph 1 of this section because of a payment described in section 14-7425 or
14-7426 to the extent that the will, the terms of the trust or applicable law requires
the fiduciary to make the payment from assets other than the property or to the extent
that the fiduciary recovers or expects to recover the payment from a third party. The net
income and principal receipts from the property are determined by including all of the
amounts the fiduciary receives or pays with respect to the property, whether those
amounts accrued or became due before, on or after the date of a decedent's death or an
income interest's terminating event, and by making a reasonable provision for amounts
that the fiduciary believes the estate or terminating income interest may become
obligated to pay after the property is distributed.
14-7406 Distribution to residuary and remainder beneficiaries
A. Each beneficiary described in section 14-7405, paragraph 4 is entitled to
receive a portion of the net income equal to the beneficiary's fractional interest in
undistributed principal assets, using values as of the distribution date. If a fiduciary
makes more than one distribution of assets to beneficiaries to whom this section applies,
each beneficiary, including one who does not receive part of the distribution, is
entitled, as of each distribution date, to the net income the fiduciary has received
after the date of death or terminating event or earlier distribution date but has not
distributed as of the current distribution date.
B. In determining a beneficiary's share of net income, the following apply:
1. The beneficiary is entitled to receive a portion of the net income equal to the
beneficiary's fractional interest in the undistributed principal assets immediately
before the distribution date, including assets that later may be sold to meet principal
obligations.
2. The beneficiary's fractional interest in the undistributed principal assets must
be calculated without regard to property specifically given to a beneficiary and property
required to pay pecuniary amounts not in trust.
3. The beneficiary's fractional interest in the undistributed principal assets must
be calculated on the basis of the aggregate value of those assets as of the distribution
date without reducing the value by any unpaid principal obligation.
4. The distribution date for purposes of this section may be the date as of which
the fiduciary calculates the value of the assets if that date is reasonably near the date
on which assets are actually distributed.
C. If a fiduciary does not distribute all of the collected but undistributed net
income to each person as of a distribution date, the fiduciary shall maintain appropriate
records showing the interest of each beneficiary in that net income.
D. A fiduciary may apply this section to the extent that the fiduciary considers it
appropriate, to net gain or loss realized after the date of death or terminating event or
earlier distribution date from the disposition of a principal asset if this section
applies to the income from the asset.
14-7407 When right to income begins and ends
A. An income beneficiary is entitled to net income from the date on which the
income interest begins. An income interest begins on the date specified in the terms of
the trust or, if no date is specified, on the date an asset becomes subject to a trust or
successive income interest.
B. An asset becomes subject to a trust on any of the following dates:
1. The date it is transferred to the trust in the case of an asset that is
transferred to a trust during the transferor's life.
2. The date of a testator's death in the case of an asset that becomes subject to a
trust by reason of a will, even if there is an intervening period of administration of
the testator's estate.
3. The date of an individual's death in the case of an asset that is transferred to
a fiduciary by a third party because of the individual's death.
C. An asset becomes subject to a successive income interest on the day after the
preceding income interest ends, as determined under subsection D, even if there is an
intervening period of administration to wind up the preceding income interest.
D. An income interest ends on the day before an income beneficiary dies or another
terminating event occurs or on the last day of a period during which there is no
beneficiary to whom a trustee may distribute income.
14-7408 Apportionment of receipts and disbursements when decedent dies or income interest begins
A. A trustee shall allocate an income receipt or disbursement other than one to
which section 14-7405, paragraph 1 applies to principal if its due date occurs before a
decedent dies in the case of an estate or before an income interest begins in the case of
a trust or successive income interest.
B. A trustee shall allocate an income receipt or disbursement to income if its due
date occurs on or after the date on which a decedent dies or an income interest begins
and it is a periodic due date. An income receipt or disbursement must be treated as
accruing from day to day if its due date is not periodic or it has no due date. The
portion of the receipt or disbursement accruing before the date on which a decedent dies
or an income interest begins must be allocated to principal and the balance must be
allocated to income.
C. An item of income or an obligation is due on the date the payer is required to
make a payment. If a payment date is not stated, there is no due date for the purposes of
this article. Distributions to shareholders or other owners from an entity to which
section 14-7410 applies are deemed to be due on the date fixed by the entity for
determining who is entitled to receive the distribution or, if no date is fixed, on the
declaration date for the distribution. A due date is periodic for receipts or
disbursements that must be paid at regular intervals under a lease or an obligation to
pay interest or if an entity customarily makes distributions at regular intervals.
14-7409 Apportionment when income interest ends; definition
A. When a mandatory income interest ends, the trustee shall pay to a mandatory
income beneficiary who survives that date, or the estate of a deceased mandatory income
beneficiary whose death causes the interest to end, the beneficiary's share of the
undistributed income that is not disposed of under the terms of the trust unless the
beneficiary has an unqualified power to revoke more than five per cent of the trust
immediately before the income interest ends. In the latter case, the undistributed income
from the portion of the trust that may be revoked must be added to principal.
B. When a trustee's obligation to pay a fixed annuity or a fixed fraction of the
value of the trust's assets ends, the trustee shall prorate the final payment to the
extent required by applicable law to accomplish a purpose of the trust or its settlor
relating to income, gift, estate or other tax requirements.
C. For the purposes of this section, "undistributed income" means net income
received before the date on which an income interest ends and does not include an item of
income or expense that is due or accrued or net income that has been added or is required
to be added to principal under the terms of the trust.
14-7410 Character of receipts; definition
A. Except as otherwise provided in this section, a trustee shall allocate to income
money received from an entity.
B. A trustee shall allocate the following receipts from an entity to principal:
1. Property other than money.
2. Money received in one distribution or a series of related distributions in
exchange for part or all of a trust's interest in the entity.
3. Money received in total or partial liquidation of the entity.
4. Money received from an entity that is a regulated investment company or a real
estate investment trust if the money distributed is a capital gain dividend for federal
income tax purposes.
C. Money is received in partial liquidation either:
1. To the extent that the entity, at or near the time of a distribution, indicates
that it is a distribution in partial liquidation.
2. If the total amount of money and property received in a distribution or series
of related distributions is greater than twenty per cent of the entity's gross assets, as
shown by the entity's year-end financial statements immediately preceding the initial
receipt.
D. Money is not received in partial liquidation, nor may it be taken into account
under subsection C, paragraph 2 of this section to the extent that it does not exceed the
amount of income tax that a trustee or beneficiary must pay on taxable income of the
entity that distributes the money.
E. A trustee may rely on a statement made by an entity about the source or
character of a distribution if the statement is made at or near the time of distribution
by the entity's board of directors or another person or group of persons authorized to
exercise powers to pay money or transfer property comparable to those of a corporation's
board of directors.
F. For the purposes of this section, " entity" means any corporation, partnership,
limited liability company, regulated investment company, real estate investment trust,
common trust fund or other organization in which a trustee has an interest, other than a
trust or estate to which section 14-7411 applies, a business or activity to which section
14-7412 applies or an asset-backed security to which section 14-7424 applies.
14-7411 Distribution from trust or estate
A trustee shall allocate to income an amount received as a distribution of income
from a trust or an estate in which the trust has an interest other than a purchased
interest and shall allocate to principal an amount received as a distribution of
principal from such a trust or estate. If a trustee purchases an interest in a trust that
is an investment entity or a decedent or donor transfers an interest in such a trust to a
trustee, section 14-7410 or 14-7424 applies to a receipt from the trust.
14-7412 Business and other activities conducted by trustee
A. If a trustee who conducts a business or other activity determines that it is in
the best interest of all of the beneficiaries to account separately for the business or
activity instead of accounting for it as part of the trust's general accounting records,
the trustee may maintain separate accounting records for its transactions, whether or not
its assets are segregated from other trust assets.
B. A trustee who accounts separately for any business or other activity may
determine the extent to which its net cash receipts must be retained for working capital,
the acquisition or replacement of fixed assets and other reasonably foreseeable needs of
the business or activity and the extent to which the remaining net cash receipts are
accounted for as principal or income in the trust's general accounting records. If a
trustee sells assets of the business or other activity, other than in the ordinary course
of the business or activity, the trustee shall account for the net amount received as
principal in the trust's general accounting records to the extent the trustee determines
that the amount received is no longer required in the conduct of the business.
C. Activities for which a trustee may maintain separate accounting records include:
1. Retail, manufacturing, service and other traditional business activities.
2. Farming.
3. Raising and selling livestock and other animals.
4. Management of rental properties.
5. Extraction of minerals and other natural resources.
6. Timber operations.
7. Activities to which section 14-7423 applies.
14-7413 Principal receipts A trustee shall allocate to principal: 1. To the extent not allocated to income under this article, assets received from a transferor during the transferor's lifetime, a decedent's estate, a trust with a terminating income interest or a payer under a contract naming the trust or its trustee as beneficiary. 2. Money or other property received from the sale, exchange, liquidation or change in form of a principal asset, including realized profit, subject to this article. 3. Amounts recovered from third parties to reimburse the trust because of disbursements described in section 14-7426, subsection A, paragraph 7 or for other reasons to the extent not based on the loss of income. 4. Proceeds of property taken by eminent domain, but a separate award made for the loss of income with respect to an accounting period during which a current income beneficiary had a mandatory income interest is income. 5. Net income received in an accounting period during which there is no beneficiary to whom a trustee may or must distribute income. 6. Other receipts as provided in sections 14-7417 through 14-7424. 14-7414 Rental property
To the extent that a trustee accounts for receipts from rental property pursuant to
this section, the trustee shall allocate to income an amount received as rent of real or
personal property, including an amount received for cancellation or renewal of a lease.
An amount received as a refundable deposit, including a security deposit or a deposit
that is to be applied as rent for future periods, must be added to principal and held
subject to the terms of the lease and is not available for distribution to a beneficiary
until the trustee's contractual obligations have been satisfied with respect to that
amount.
14-7415 Obligation to pay money
A. An amount received as interest, whether determined at a fixed, variable or
floating rate, on an obligation to pay money to the trustee, including an amount received
as consideration for prepaying principal, must be allocated to income without any
provision for amortization of premium.
B. A trustee shall allocate to principal an amount received from the sale,
redemption or other disposition of an obligation to pay money to the trustee more than
one year after it is purchased or acquired by the trustee, including an obligation whose
purchase price or value when it is acquired is less than its value at maturity. If the
obligation matures within one year after it is purchased or acquired by the trustee, an
amount received in excess of its purchase price or its value when acquired by the trust
must be allocated to income.
C. This section does not apply to an obligation to which section 14-7418, 14-7419,
14-7420, 14-7421, 14-7423 or 14-7424 applies.
14-7416 Insurance policies and similar contracts
A. Except as otherwise provided in subsection B of this section, a trustee shall
allocate to principal the proceeds of a life insurance policy or other contract in which
the trust or its trustee is named as beneficiary, including a contract that insures the
trust or its trustee against loss for damage to, destruction of or loss of title to a
trust asset. The trustee shall allocate dividends on an insurance policy to income if the
premiums on the policy are paid from income, and to principal if the premiums are paid
from principal.
B. A trustee shall allocate to income proceeds of a contract that insures the
trustee against loss of occupancy or other use by an income beneficiary, loss of income
or, subject to section 14-7412, loss of profits from a business.
C. This section does not apply to a contract to which section 14-7418 applies.
14-7417 Insubstantial allocations not required
If a trustee determines that an allocation between principal and income required by
section 14-7418, 14-7419, 14-7420, 14-7421 or 14-7424 is insubstantial, the trustee may
allocate the entire amount to principal unless one of the circumstances described in
section 14-7403, subsection C applies to the allocation. This power may be exercised by a
cotrustee in the circumstances described in section 14-7403, subsection D and may be
released for the reasons and in the manner described in section 14-7403, subsection E.
An allocation is presumed to be insubstantial if either:
1. The amount of the allocation would increase or decrease net income in an
accounting period, as determined before the allocation, by less than ten per cent.
2. The value of the asset producing the receipt for which the allocation would be
made is less than ten per cent of the total value of the trust's assets at the beginning
of the accounting period.
14-7418 Deferred compensation, annuities and similar payments; definition
A. To the extent that a payment is characterized as interest or a dividend, or a
payment made in lieu of interest or a dividend, a trustee shall allocate it to income.
The trustee shall allocate to principal the balance of the payment and any other payment
received in the same accounting period that is not characterized as interest, a dividend
or an equivalent payment.
B. If no part of a payment is characterized as interest, a dividend or an
equivalent payment, and all or part of the payment is required to be made, a trustee
shall allocate to income ten per cent of the part that is required to be made during the
accounting period and the balance to principal. If no part of a payment is required to be
made or the payment received is the entire amount to which the trustee is entitled, the
trustee shall allocate the entire payment to principal. For purposes of this subsection,
a payment is not required to be made to the extent that it is made because the trustee
exercises a right of withdrawal.
C. If, to obtain an estate tax marital deduction for a trust, a trustee must
allocate more of a payment to income than provided for by this section, the trustee shall
allocate to income the additional amount necessary to obtain the marital deduction.
D. This section does not apply to payments to which section 14-7419 applies.
E. For the purposes of this section, " payment" means a payment that a trustee may
receive over a fixed number of years or during the life of one or more individuals
because of services rendered or property transferred to the payer in exchange for future
payments. Payment includes a payment made in money or property from the payer's general
assets or from a separate fund created by the payer, including a private or commercial
annuity, an individual retirement account and a pension, profit sharing, stock bonus or
stock ownership plan.
14-7419 Liquidating assets; definition
A. A trustee shall allocate to income ten per cent of the receipts from a
liquidating asset and the balance to principal.
B. For the purposes of this section, "liquidating asset":
1. Means an asset whose value will diminish or terminate because the asset is
expected to produce receipts for a period of limited duration.
2. Includes a leasehold, patent, copyright, royalty right and right to receive
payments during a period of more than one year under an arrangement that does not provide
for the payment of interest on the unpaid balance.
3. Does not include:
(a) A payment subject to section 14-7418.
(b) Resources subject to section 14-7420.
(c) Timber subject to section 14-7421.
(d) An activity subject to section 14-7423.
(e) An asset subject to section 14-7424.
(f) Any asset for which the trustee establishes a reserve for depreciation under
section 14-7427.
14-7420 Minerals, water and other natural resources
A. To the extent that a trustee accounts for receipts from an interest in minerals
or other natural resources pursuant to this section, the trustee shall allocate them as
follows:
1. If received as nominal delay rental or nominal annual rent on a lease, a receipt
must be allocated to income.
2. If received from a production payment, a receipt must be allocated to income if
and to the extent that the agreement creating the production payment provides a factor
for interest or its equivalent. The balance must be allocated to principal.
3. If an amount received as a royalty, shut-in-well payment, take-or-pay payment,
bonus or delay rental is more than nominal, ninety per cent must be allocated to
principal and the balance to income.
4. If an amount is received from a working interest or any other interest not
provided for in paragraph 1, 2 or 3, ninety per cent of the net amount received must be
allocated to principal and the balance to income.
B. An amount received on account of an interest in water that is renewable must be
allocated to income. If the water is not renewable, ninety per cent of the amount must be
allocated to principal and the balance to income.
C. This article applies whether or not a decedent or donor was extracting minerals,
water or other natural resources before the interest became subject to the trust.
D. If a trust owns an interest in minerals, water or other natural resources on the
effective date of this article, the trustee may allocate receipts from the interest as
provided in this article or in the manner used by the trustee before the effective date
of this article. If the trust acquires an interest in minerals, water or other natural
resources after the effective date of this article, the trustee shall allocate receipts
from the interest as provided in this article.
14-7421 Timber
A. To the extent that a trustee accounts for receipts from the sale of timber and
related products pursuant to this section, the trustee shall allocate the net receipts:
1. To income to the extent that the amount of timber removed from the land does not
exceed the rate of growth of the timber during the accounting periods in which a
beneficiary has a mandatory income interest.
2. To principal to the extent that the amount of timber removed from the land
exceeds the rate of growth of the timber or the net receipts are from the sale of
standing timber.
3. To or between income and principal if the net receipts are from the lease of
timberland or from a contract to cut timber from land owned by a trust, by determining
the amount of timber removed from the land under the lease or contract and applying
paragraphs 1 and 2.
4. To principal to the extent that advance payments, bonuses and other payments are
not allocated pursuant to paragraph 1, 2 or 3.
B. In determining net receipts to be allocated pursuant to subsection A, a trustee
shall deduct and transfer to principal a reasonable amount for depletion.
C. This article applies whether or not a decedent or transferor was harvesting
timber from the property before it became subject to the trust.
D. If a trust owns an interest in timberland on the effective date of this article,
the trustee may allocate net receipts from the sale of timber and related products as
provided in this article or in the manner used by the trustee before the effective date
of this article. If the trust acquires an interest in timberland after the effective date
of this article, the trustee shall allocate net receipts from the sale of timber and
related products as provided in this article.
14-7422 Property not productive of income
A. If a marital deduction is allowed for all or part of a trust whose assets
consist substantially of property that does not provide the spouse with sufficient income
from or use of the trust assets, and if the amounts that the trustee transfers from
principal to income under section 14-7403 and distributes to the spouse from principal
pursuant to the terms of the trust are insufficient to provide the spouse with the
beneficial enjoyment required to obtain the marital deduction, the spouse may require the
trustee to make property productive of income, convert property within a reasonable time
or exercise the power conferred by section 14-7403, subsection A. The trustee may decide
which action or combination of actions to take.
B. In cases not governed by subsection A of this section, proceeds from the sale or
other disposition of an asset are principal without regard to the amount of income the
asset produces during any accounting period.
14-7423 Derivatives and options; definition
A. To the extent that a trustee does not account under section 14-7412 for
transactions in derivatives, the trustee shall allocate to principal receipts from and
disbursements made in connection with those transactions.
B. If a trustee grants an option to buy property from the trust, whether or not the
trust owns the property when the option is granted, grants an option that permits another
person to sell property to the trust or acquires an option to buy property for the trust
or an option to sell an asset owned by the trust, and the trustee or other owner of the
asset is required to deliver the asset if the option is exercised, an amount received for
granting the option must be allocated to principal. An amount paid to acquire the option
must be paid from principal. A gain or loss realized on the exercise of an option,
including an option granted to a settlor of the trust for services rendered, must be
allocated to principal.
C. For the purposes of this section, " derivative" means a contract or financial
instrument or a combination of contracts and financial instruments that gives a trust the
right or obligation to participate in some or all changes in the price of a tangible or
intangible asset or group of assets or changes in a rate, an index of prices or rates or
other market indicator for an asset or a group of assets.
14-7424 Asset-backed securities; definition
A. If a trust receives a payment from interest or other current return and from
other proceeds of the collateral financial assets, the trustee shall allocate to income
the portion of the payment that the payer identifies as being from interest or other
current return and shall allocate the balance of the payment to principal.
B. If a trust receives one or more payments in exchange for the trust's entire
interest in an asset-backed security in one accounting period, the trustee shall allocate
the payments to principal. If a payment is one of a series of payments that will result
in the liquidation of the trust's interest in the security over more than one accounting
period, the trustee shall allocate ten per cent of the payment to income and the balance
to principal.
C. For the purposes of this section, "asset-backed security":
1. Means an asset whose value is based on the right it gives the owner to receive
distributions from the proceeds of financial assets that provide collateral for the
security.
2. Includes an asset that gives the owner the right to receive from the collateral
financial assets only the interest or other current return or only the proceeds other
than interest or current return.
3. Does not include an asset to which section 14-7410 or 14-7418 applies.
14-7425 Disbursements from income
A trustee shall make the following disbursements from income to the extent that they
are not disbursements to which section 14-7405, paragraph 2, subdivision (b) or (c)
applies:
1. One-half of the regular compensation of the trustee and of any person providing
investment advisory or custodial services to the trustee, whether based on a percentage
of income or principal, a fixed amount or an hourly charge.
2. One-half of all expenses for accountings, regularly recurring income tax
preparation services, judicial proceedings or other matters that involve both the income
and remainder interests.
3. All of the other ordinary expenses incurred in connection with the
administration, management or preservation of trust property and the distribution of
income, including interest, ordinary repairs, regularly recurring taxes assessed against
principal and expenses of a proceeding or other matter that concerns primarily the income
interest.
4. Recurring premiums on insurance covering the loss of a principal asset or the
loss of income from or use of the asset.
14-7426 Disbursements from principal
A. A trustee shall make the following disbursements from principal:
1. The remaining one-half of the disbursements described in section 14-7425,
paragraphs 1 and 2.
2. All of the trustee's compensation calculated on principal as a fee for
acceptance, distribution or termination and disbursements made to prepare property for
sale.
3. Payments on the principal of a trust debt.
4. Expenses of a proceeding that concerns primarily principal, including a
proceeding to construe the trust or to protect the trust or its property.
5. Premiums paid on a policy of insurance not described in section 14-7425,
paragraph 4 of which the trust is the owner and beneficiary.
6. Estate, inheritance and other transfer taxes, including penalties, apportioned
to the trust.
7. Disbursements related to environmental matters, including reclamation, assessing
environmental conditions, remedying and removing environmental contamination, monitoring
remedial activities and the release of substances, preventing future releases of
substances, collecting amounts from persons liable or potentially liable for the costs of
those activities, penalties imposed under environmental laws or regulations and other
payments made to comply with those laws or regulations, statutory or common law claims by
third parties and defending claims based on environmental matters.
B. If a principal asset is encumbered with an obligation that requires income from
that asset to be paid directly to the creditor, the trustee shall transfer from principal
to income an amount equal to the income paid to the creditor in reduction of the
principal balance of the obligation.
14-7427 Transfers from income to principal for depreciation; definition
A. A trustee may transfer to principal a reasonable amount of the net cash receipts
from a principal asset that is subject to depreciation but may not transfer any amount
for depreciation:
1. Of that portion of real property used or available for use by a beneficiary as a
residence or of tangible personal property held or made available for the personal use or
enjoyment of a beneficiary.
2. During the administration of a decedent's estate.
3. Under this section if the trustee is accounting under section 14-7412 for the
business or activity in which the asset is used.
B. An amount transferred to principal need not be held as a separate fund.
C. For the purposes of this section, "depreciation" means a reduction in value due
to wear, tear, decay, corrosion or gradual obsolescence of a fixed asset having a useful
life of more than one year.
14-7428 Transfers from income to reimburse principal
A. If a trustee makes or expects to make a principal disbursement described in this
section, the trustee may transfer an appropriate amount from income to principal in one
or more accounting periods to reimburse principal or to provide a reserve for future
principal disbursements.
B. Principal disbursements to which subsection A of this section applies include
the following, but only to the extent that the trustee has not been and does not expect
to be reimbursed by a third party:
1. An amount chargeable to income but paid from principal because it is unusually
large, including extraordinary repairs.
2. A capital improvement to a principal asset, whether in the form of changes to an
existing asset or the construction of a new asset, including special assessments.
3. Disbursements made to prepare property for rental, including tenant allowances,
leasehold improvements and brokers' commissions.
4. Periodic payments on an obligation secured by a principal asset to the extent
that the amount transferred from income to principal for depreciation is less than the
periodic payments.
5. Disbursements described in section 14-7426, subsection A, paragraph 7.
C. If the asset whose ownership gives rise to the disbursements becomes subject to
a successive income interest after an income interest ends, a trustee may continue to
transfer amounts from income to principal as provided in subsection A of this section.
14-7429 Income taxes
A. A tax required to be paid by a trustee based on receipts allocated to income
must be paid from income.
B. A tax required to be paid by a trustee based on receipts allocated to principal
must be paid from principal, even if the tax is called an income tax by the taxing
authority.
C. A tax required to be paid by a trustee on the trust's share of an entity's
taxable income must be paid proportionately:
1. From income to the extent that receipts from the entity are allocated to income.
2. From principal to the extent that both:
(a) Receipts from the entity are allocated to principal.
(b) The trust's share of the entity's taxable income exceeds the total receipts
described in paragraph 1 and subdivision (a) of this paragraph.
D. For purposes of this section, receipts allocated to principal or income must be
reduced by the amount distributed to a beneficiary from principal or income for which the
trust receives a deduction in calculating the tax.
14-7430 Adjustments between principal and income because of taxes
A. A fiduciary may make adjustments between principal and income to offset the
shifting of economic interests or tax benefits between income beneficiaries and remainder
beneficiaries that arise from:
1. Elections and decisions, other than those described in subsection B, that the
fiduciary makes from time to time regarding tax matters.
2. An income tax or any other tax that is imposed on the fiduciary or a beneficiary
as a result of a transaction involving or a distribution from the estate or trust.
3. The ownership by an estate or trust of an interest in an entity whose taxable
income, whether or not distributed, is includible in the taxable income of the estate,
the trust or a beneficiary.
B. If the amount of an estate tax marital deduction or charitable contribution
deduction is reduced because a fiduciary deducts an amount paid from principal for income
tax purposes instead of deducting it for estate tax purposes, and as a result estate
taxes paid from principal are increased and income taxes paid by an estate, trust or
beneficiary are decreased, each estate, trust or beneficiary that benefits from the
decrease in income tax shall reimburse the principal from which the increase in estate
tax is paid. The total reimbursement must equal the increase in the estate tax to the
extent that the principal used to pay the increase would have qualified for a marital
deduction or charitable contribution deduction but for the payment. The proportionate
share of the reimbursement for each estate, trust or beneficiary whose income taxes are
reduced must be the same as its proportionate share of the total decrease in income tax.
An estate or trust shall reimburse principal from income.
14-7431 Proposed actions; notification; definition
A. A trustee may, but is not required to, give notice of a proposed action
regarding a matter governed by this article as provided in this section.
B. The trustee shall mail notice of a proposed action, by certified, registered or
ordinary first class mail, to all beneficiaries who are receiving, or are entitled to
receive, income from the trust or to receive a distribution of principal if the trust
were terminated at the time the notice is given. The trustee must give notice to any
beneficiary under any incapacity pursuant to section 14-1403.
C. The trustee is not required to give notice of a proposed action to any person
who consents in writing to the proposed action. A person may give consent at any time
before or after the proposed action is taken.
D. The notice of the proposed action shall state that it is given pursuant to this
article and shall contain all of the following:
1. The name and mailing address of the trustee.
2. The name and telephone number of a person who may be contacted for additional
information.
3. A description of the action proposed to be taken and an explanation of the
reasons for the action.
4. The time within which objections to the proposed action can be made, which shall
be at least thirty days after the mailing of the notice.
5. The date on or after which the proposed action may be taken or is effective.
E. A beneficiary may object to the proposed action by mailing a written objection
to the trustee at the address stated in the notice of proposed action within the time
period specified in the notice of proposed action.
F. A trustee is not liable to a beneficiary for an action regarding a matter
governed by this article if the trustee does not receive a written objection to the
proposed action from the beneficiary within the applicable time period and the other
requirements of this article are satisfied. If a beneficiary entitled to notice does not
object under this section, the trustee is not liable to any current or future beneficiary
with respect to the proposed action.
G. If the trustee receives a written objection within the applicable time period,
either the trustee or a beneficiary may petition the court to have the proposed action
taken as proposed, taken with modifications or not taken at all. An objecting
beneficiary has the burden of proving that the trustee's proposed action should not be
taken. A beneficiary who has not objected may oppose the proposed action in such a
proceeding. If the trustee decides not to implement the proposed action, the trustee
shall notify the beneficiaries of the decision not to take the action and the reasons for
the decision. The trustee's decision not to implement the proposed action does not give
rise to liability to any current or future beneficiary. In such circumstances, a
beneficiary may petition the court to have the action taken and has the burden of proving
that it should be taken.
H. For the purposes of this section, "proposed action" includes a course of action
or a decision not to take a course of action.
14-7501 Definitions
A. In this article, unless the context otherwise requires:
1. "Bank" includes commercial banks, savings banks, trust companies, and any person
or association of persons, whether incorporated or not, carrying on the business of
banking.
2. "Fiduciary" includes a trustee under any trust, expressed, implied, resulting or
constructive, executor, administrator, guardian, conservator, curator, receiver, trustee
in bankruptcy, assignee for the benefit of creditors, partner, agent, officer of a
corporation, public or private, public officer, or any other person acting in a fiduciary
capacity for any person, trust or estate.
3. "Person" includes a corporation, partnership, or other association, or two or
more persons having a joint or common interest.
4. "Principal" includes any person to whom a fiduciary as such owes an obligation.
B. A thing is done "in good faith" within the meaning of this article, when it is
in fact done honestly, whether it be done negligently or not.
14-7502 Application of payments made to fiduciaries
A person who in good faith pays or transfers to a fiduciary any money or other
property which the fiduciary as such is authorized to receive, is not responsible for the
proper application thereof by the fiduciary; and any right or title acquired from the
fiduciary in consideration of such payment or transfer is not invalid in consequence of a
misapplication by the fiduciary.
14-7503 Transfer of negotiable instrument by fiduciary
If any negotiable instrument payable or endorsed to a fiduciary as such is endorsed
by the fiduciary, or if any negotiable instrument payable or endorsed to his principal is
endorsed by a fiduciary empowered to endorse such instrument on behalf of his principal,
the endorsee is not bound to inquire whether the fiduciary is committing a breach of his
obligation as fiduciary in endorsing or delivering the instrument, and is not chargeable
with notice that the fiduciary is committing a breach of his obligation as fiduciary
unless he takes the instrument with actual knowledge of such breach or with knowledge of
such facts that his action in taking the instrument amounts to bad faith. If, however,
such instrument is transferred by the fiduciary in payment of or as security for a
personal debt of the fiduciary to the actual knowledge of the creditor or is transferred
in any transaction known by the transferee to be for the personal benefit of the
fiduciary, the creditor or other transferee is liable to the principal if the fiduciary
in fact commits a breach of his obligation as fiduciary in transferring the instrument.
14-7504 Check drawn by fiduciary payable to third person
If a check or other bill of exchange is drawn by a fiduciary as such, or in the name
of his principal by a fiduciary empowered to draw such instrument in the name of his
principal, the payee is not bound to inquire whether the fiduciary is committing a breach
of his obligation as a fiduciary in drawing or delivering the instrument, and is not
chargeable with notice that the fiduciary is committing a breach of his obligation as
fiduciary unless he takes the instrument with actual knowledge of such breach or with
knowledge of such facts that his action in taking the instrument amounts to bad
faith. If, however, such instrument is payable to a personal creditor of the fiduciary
and delivered to the creditor in payment of or as security for a personal debt of the
fiduciary to the actual knowledge of the creditor or is drawn and delivered in any
transaction known by the payee to be for the personal benefit of the fiduciary, the
creditor or other payee is liable to the principal if the fiduciary in fact commits a
breach of his obligation as fiduciary in drawing or delivering the instrument.
14-7505 Check drawn by and payable to fiduciary
If a check or other bill of exchange is drawn by a fiduciary as such or in the name
of his principal by a fiduciary empowered to draw such instrument in the name of his
principal, payable to the fiduciary personally, or payable to a third person and by him
transferred to the fiduciary, and is thereafter transferred by the fiduciary, whether in
payment of a personal debt of the fiduciary or otherwise, the transferee is not bound to
inquire whether the fiduciary is committing a breach of his obligation as fiduciary in
transferring the instrument, and is not chargeable with notice that the fiduciary is
committing a breach of his obligation as fiduciary unless he takes the instrument with
actual knowledge of such breach or with knowledge of such facts that his action in taking
the instrument amounts to bad faith.
14-7506 Deposit in name of fiduciary as such
If a deposit is made in a bank to the credit of a fiduciary as such, the bank is
authorized to pay the amount of the deposit or any part thereof upon the check of the
fiduciary, signed with the name in which such deposit is entered, without being liable to
the principal, unless the bank pays the check with actual knowledge that the fiduciary is
committing a breach of his obligation as fiduciary in drawing the check or with knowledge
of such facts that its action in paying the check amounts to bad faith. If, however,
such a check is payable to the drawee bank and is delivered to it in payment of or as
security for a personal debt of the fiduciary to it, the bank is liable to the principal
if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or
delivering the check.
14-7507 Deposit in name of principal
If a check is drawn upon the account of his principal in a bank by a fiduciary who
is empowered to draw checks upon his principal's account, the bank is authorized to pay
such check without being liable to the principal, unless the bank pays the check with
actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary
in drawing such check, or with knowledge of such facts that its action in paying the
check amounts to bad faith. If, however, such a check is payable to the drawee bank and
is delivered to it in payment of or as security for a personal debt of the fiduciary to
it, the bank is liable to the principal if the fiduciary in fact commits a breach of his
obligation as fiduciary in drawing or delivering the check.
14-7508 Deposit in fiduciary's personal account
If a fiduciary makes a deposit in a bank to his personal credit of checks drawn by
him upon an account in his own name as fiduciary, or of checks payable to him as
fiduciary, or of checks drawn by him upon an account in the name of his principal if he
is empowered to draw checks thereon, or of checks payable to his principal and endorsed
by him, if he is empowered to endorse such checks, or if he otherwise makes a deposit of
funds held by him as fiduciary, the bank receiving such deposit is not bound to inquire
whether the fiduciary is committing thereby a breach of his obligation as fiduciary; and
the bank is authorized to pay the amount of the deposit or any part thereof upon the
personal check of the fiduciary without being liable to the principal, unless the bank
receives the deposit or pays the check with actual knowledge that the fiduciary is
committing a breach of his obligation as fiduciary in making such deposit or in drawing
such check, or with knowledge of such facts that its action in receiving the deposit or
paying the check amounts to bad faith.
14-7509 Deposit in names of two or more trustees
When a deposit is made in a bank in the name of two or more persons as trustees and
a check is drawn upon the trust account by any trustee or trustees authorized by the
other trustee or trustees to draw checks upon the trust account, neither the payee nor
other holder nor the bank is bound to inquire whether it is a breach of trust to
authorize such trustee or trustees to draw checks upon the trust account, and is not
liable unless the circumstances be such that the action of the payee or other holder or
the bank amounts to bad faith.
14-7510 Cases not provided for by article
In any case not provided for in this article the rules of law and equity, including
the law merchant and those rules of law and equity relating to trusts, agency, negotiable
instruments and banking, shall continue to apply.
14-7511 Uniformity of interpretation
This article shall be so interpreted and construed as to effectuate its general
purpose to make uniform the law of those states which enact it.
14-7512 Short title
This article may be cited as the uniform fiduciaries act.
14-7601 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. 14-7602 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.
C. Among circumstances that a trustee shall consider in investing and managing
trust assets are any of the following that are relevant to the trust or its
beneficiaries:
1. General economic conditions.
2. The possible effect of inflation or deflation.
3. The expected tax consequences of investment decisions or strategies.
4. The role that each investment or course of action plays within the overall trust
portfolio, which may include financial assets, interests in closely held enterprises,
tangible and intangible personal property and real property.
5. The expected total return from income and the appreciation of capital.
6. Other resources of the beneficiaries.
7. Needs for liquidity, regularity of income and preservation or appreciation of
capital.
8. An asset's special relationship or special value, if any, to the purposes of the
trust or to one or more of the beneficiaries.
D. A trustee shall make a reasonable effort to verify facts relevant to the
investment and management of trust assets.
E. A trustee may invest in any kind of property or type of investment consistent
with the standards of this article.
F. A trustee who has special skills or expertise, or who is named trustee in
reliance on the trustee's representation that the trustee has special skills or
expertise, has a duty to use those special skills or expertise.
14-7603 Diversification
A trustee shall diversify the investments of the trust unless the trustee reasonably
determines that, because of special circumstances, the purposes of the trust are better
served without diversifying.
14-7604 Duties at inception of trusteeship
Within a reasonable time after accepting a trusteeship or receiving trust assets, a
trustee shall review the trust assets and make and implement decisions concerning the
retention and disposition of assets, in order to bring the trust portfolio into
compliance with the purposes, terms, distribution requirements and other circumstances of
the trust and with the requirements of this article.
14-7605 Loyalty
A trustee shall invest and manage the trust assets solely in the interest of the
beneficiaries.
14-7606 Impartiality
If a trust has two or more beneficiaries, the trustee shall act impartially in
investing and managing the trust assets, taking into account any differing interests of
the beneficiaries.
14-7607 Investment costs
In investing and managing trust assets, a trustee shall only incur costs that are
appropriate and reasonable in relation to the assets, the purposes of the trust and the
skills of the trustee.
14-7608 Reviewing compliance
Compliance with this article is determined in light of the facts and circumstances
existing at the time of a trustee's decision or action and not by hindsight.
14-7609 Delegation of investment and management functions
A. A trustee may delegate investment and management functions that a prudent
trustee of comparable skills could properly delegate under the circumstances. The
trustee shall exercise reasonable care, skill and caution in:
1. Selecting an agent.
2. Establishing the scope and terms of the delegation, consistent with the purposes
and terms of the trust.
3. Periodically reviewing the agent's actions in order to monitor the agent's
performance and compliance with the terms of the delegation.
B. In performing a delegated function, an agent owes a duty to the trust to
exercise reasonable care to comply with the terms of the delegation.
C. A trustee who complies with the requirements of subsection A is not liable to
the beneficiaries or to the trust for the decisions or actions of the agent to whom the
function was delegated.
D. By accepting the delegation of a trust function from the trustee of a trust that
is subject to the laws of this state, an agent submits to the jurisdiction of the courts
of this state.
14-7610 Prudent investor rule; language to invoke standard
The following terms or comparable language in the provisions of a trust, unless
otherwise limited or modified, authorizes any investment or strategy permitted under this
article:
1. Investments permissible by law for investment of trust funds.
2. Legal investments.
3. Authorized investments.
4. Using the judgment and care under the circumstances then prevailing that persons
of prudence, discretion and intelligence exercise in the management of their own affairs,
not in regard to speculation but in regard to the permanent disposition of their funds,
considering the probable income as well as the probable safety of their capital.
5. Prudent man rule.
6. Prudent trustee rule.
7. Prudent person rule.
8. Prudent investor rule.
14-7611 Application to existing trusts
A. This article applies to trusts existing on and created after the effective date
of this article.
B. As applied to trusts existing on the effective date of this article, this
article governs only decisions or actions occurring after that date.
14-7651 Definitions
In this article, unless the context otherwise requires:
1. "Adult" means a person who is at least twenty-one years of age.
2. "Benefit plan" means an employer's plan for the benefit of an employee or
partner.
3. "Broker" means a person lawfully engaged in the business of effecting
transactions in securities or commodities for the person's own account or for the account
of others.
4. "Conservator" means a person appointed or qualified by a court to act as a
general, limited or temporary guardian of a minor's property or a person legally
authorized to perform substantially the same functions.
5. "Court" means the superior court.
6. "Custodial property" means an interest in property that is transferred to a
custodian pursuant to this article and income from and proceeds of that interest in
property.
7. "Custodian" means a person designated pursuant to section 14-7659 or a successor
or substitute custodian designated pursuant to section 14-7668.
8. "Financial institution" means a bank, trust company, savings institution or
credit union, which is chartered and supervised under state or federal law.
9. "Legal representative" means an individual's personal representative or
conservator.
10. "Member of the minor's family" means the minor's parent, stepparent, spouse,
grandparent, brother, sister, uncle or aunt, whether of the whole or half blood or by
adoption.
11. "Minor" means a person under the age of twenty-one years.
12. "Person" means an individual, corporation, organization or other legal entity.
13. "Personal representative" means an executor, administrator, successor personal
representative or special administrator of a decedent's estate or a person legally
authorized to perform substantially the same functions.
14. "State" includes a state of the United States, the District of Columbia, the
Commonwealth of Puerto Rico and a territory or possession subject to the legislative
authority of the United States.
15. "Street name or nominee name" means registration used by a broker or financial
institution for holding securities if they are not registered in the name of the
beneficial owner.
16. "Transfer" means a transaction that creates custodial property pursuant to
section 14-7659.
17. "Transferor" means a person who makes a transfer pursuant to this article.
18. "Trust company" means a financial institution, corporation or other legal
entity, which is authorized to exercise general trust powers.
14-7652 Scope and jurisdiction
A. This article applies to a transfer that refers to this article in the
designation made pursuant to section 14-7659 by which the transfer is made, if at the
time of the transfer the transferor, the minor or the custodian is a resident of this
state or the custodial property is located in this state. The custodianship so created
remains subject to this article despite a subsequent change in the residence of a
transferor, the minor or the custodian or the removal of custodial property from this
state.
B. A person designated as custodian pursuant to this article is subject to personal
jurisdiction in this state with respect to any matter relating to the custodianship.
C. A transfer which purports to be made and is valid under the uniform transfers to
minors act, the uniform gifts to minors act or a substantially similar act of another
state is governed by the law of the designated state and may be executed and is
enforceable in this state if at the time of the transfer the transferor, the minor or the
custodian is a resident of the designated state or the custodial property is located in
the designated state.
14-7653 Nomination of custodian
A. A person having the right to designate the recipient of property transferable on
the occurrence of a future event may revocably nominate a custodian to receive the
property for a minor beneficiary on the occurrence of the event by naming the custodian
followed in substance by the words, "as custodian for _______________ (name of minor)
under the ARIZONA uniform transfers to minors act". The nomination may name one or more
persons as substitute custodians to whom the property must be transferred, in the order
named, if the first nominated custodian dies before the transfer or is unable, declines
or is ineligible to serve. The nomination may be made in a will, a trust, a deed, an
instrument exercising a power of appointment or a writing designating a beneficiary of
contractual rights which is registered with or delivered to the payor, issuer or other
obligor of the contractual rights.
B. A custodian nominated pursuant to this section must be a person to whom a
transfer of property of that kind may be made pursuant to section 14-7659, subsection A.
C. The nomination of a custodian pursuant to this section does not create custodial
property until the nominating instrument becomes irrevocable or a transfer to the
nominated custodian is completed pursuant to section 14-7659. Unless the nomination of a
custodian has been revoked, on the occurrence of the future event the custodianship
becomes effective and the custodian shall enforce a transfer of the custodial property
pursuant to section 14-7659.
14-7654 Transfer by gift or exercise of power of appointment
A person may make a transfer by irrevocable gift to, or the irrevocable exercise of
a power of appointment in favor of, a custodian for the benefit of a minor pursuant to
section 14-7659.
14-7655 Transfer authorized by will or trust
A. A personal representative or trustee may make an irrevocable transfer pursuant
to section 14-7659 to a custodian for the benefit of a minor as authorized in the
governing will or trust.
B. If the testator or settlor has nominated a custodian pursuant to section 14-7653
to receive the custodial property, the transfer must be made to that person.
C. If the testator or settlor has not nominated a custodian pursuant to section
14-7653, or all persons so nominated as custodian die before the transfer or are unable,
decline or are ineligible to serve, the personal representative or the trustee, as the
case may be, shall designate the custodian from among those eligible to serve as
custodian for property of that kind pursuant to section 14-7659, subsection A.
14-7656 Other transfer by fiduciary
A. Pursuant to subsection C of this section, a personal representative or trustee
may make an irrevocable transfer to another adult or trust company as custodian for the
benefit of a minor pursuant to section 14-7659 in the absence of a will or under a will
or trust that does not contain an authorization to do so.
B. Pursuant to subsection C of this section, a conservator may make an irrevocable
transfer to another adult or trust company as custodian for the benefit of the minor
pursuant to section 14-7659.
C. A transfer pursuant to subsection A or B of this section may be made only if all
of the following apply:
1. The personal representative, trustee or conservator considers the transfer to be
in the best interest of the minor.
2. The transfer is not prohibited by or inconsistent with provisions of the
applicable will, trust agreement or other governing instrument.
3. The transfer is authorized by the court if it exceeds ten thousand dollars in
value.
14-7657 Transfer by obligor
A. Pursuant to subsections B and C of this section, a person who is not subject to
section 14-7655 or 14-7656 and who holds property of or owes a liquidated debt to a minor
who does not have a conservator may make an irrevocable transfer to a custodian for the
benefit of the minor pursuant to section 14-7659.
B. If a person having the right to do so pursuant to section 14-7653 has nominated
a custodian under that section to receive the custodial property, the transfer must be
made to that person.
C. If no custodian has been nominated pursuant to section 14-7653 or all persons so
nominated as custodian die before the transfer or are unable, decline or are ineligible
to serve, a transfer pursuant to this section may be made to an adult member of the
minor's family or to a trust company unless the property exceeds ten thousand dollars in
value.
14-7658 Receipt for custodial property
A written acknowledgement of delivery by a custodian constitutes a sufficient
receipt and discharge for custodial property transferred to the custodian pursuant to
this article.
14-7659 Manner of creating custodial property and effecting transfer; designation of initial custodian; control
A. Custodial property is created and a transfer is made if:
1. An uncertificated security or a certificated security in registered form is
either registered in the name of the transferor, an adult other than the transferor or a
trust company, followed in substance by the words, "as custodian for _______________
(name of minor) under the ARIZONA uniform transfers to minors act" or delivered if in
certificated form or any document necessary for the transfer of an uncertificated
security is delivered, together with any necessary endorsement to an adult other than the
transferor or to a trust company as custodian, accompanied by an instrument in
substantially the form set forth in subsection B.
2. Money is paid or delivered to a broker or financial institution for credit to an
account in the name of the transferor, an adult other than the transferor or a trust
company, followed in substance by the words, "as custodian for _______________ (name of
minor) under the ARIZONA uniform transfers to minors act".
3. The ownership of a life or endowment insurance policy or annuity contract is
either registered with the issuer in the name of the transferor, an adult other than the
transferor or a trust company, followed in substance by the words, "as custodian for
_______________ (name of minor) under the ARIZONA uniform transfers to minors act" or
assigned in a writing delivered to an adult other than the transferor or to a trust
company whose name in the assignment is followed in substance by the words, "as custodian
for _______________ (name of minor) under the ARIZONA uniform transfers to minors act".
4. An irrevocable exercise of a power of appointment or an irrevocable present
right to future payment under a contract is the subject of a written notification
delivered to the payor, issuer or other obligor that the right is transferred to the
transferor, an adult other than the transferor or a trust company, whose name in the
notification is followed in substance by the words, "as custodian for _______________
(name of minor) under the ARIZONA uniform transfers to minors act".
5. An interest in real property is recorded in the name of the transferor, an adult
other than the transferor or a trust company, followed in substance by the words, "as
custodian for _______________ (name of minor) under the ARIZONA uniform transfers to
minors act".
6. A certificate of title issued by a department or agency of a state or of the
United States which evidences title to tangible personal property is either issued in the
name of the transferor, an adult other than the transferor or a trust company, followed
in substance by the words, "as custodian for _______________ (name of minor) under the
ARIZONA uniform transfers to minors act" or delivered to an adult other than the
transferor or to a trust company, endorsed to that person followed in substance by the
words, "as custodian for _______________ (name of minor) under the ARIZONA uniform
transfers to minors act".
7. An interest in any property not described in paragraphs 1 through 6 is
transferred to an adult other than the transferor or to a trust company by a written
instrument in substantially the form set forth in subsection B.
B. An instrument satisfies the requirements of subsection A, paragraphs 1 and 7 if
it is in the following form:
Transfer under the ARIZONA uniform
transfers to minors act
I, _______________ (name of transferor or name and representative capacity if a
fiduciary) hereby transfer to _______________ (name of custodian), as custodian for
_______________ (name of minor) under the ARIZONA uniform transfers to minors act, the
following: (insert a description of the custodial property sufficient to identify it).
Dated: _______________.
_______________________________
(Signature)
_______________ (Name of custodian) acknowledges receipt of the property described above
as custodian for the minor named above under the ARIZONA uniform transfers to minors act.
Dated: _______________
____________________________
(Signature of custodian)
C. A transferor shall place the custodian in control of the custodial property as
soon as practicable.
14-7660 Single custodianship
A transfer may be made only for one minor and only one person may be the
custodian. All custodial property held under this article by the same custodian for the
benefit of the same minor constitutes a single custodianship.
14-7661 Validity and effect of transfer
A. The validity of a transfer made in a manner prescribed in this article is not
affected by any of the following:
1. Failure of the transferor to comply with section 14-7659, subsection C
concerning possession and control.
2. Designation of an ineligible custodian, except designation of the transferor in
the case of property for which the transferor is ineligible to serve as custodian
pursuant to section 14-7659, subsection A.
3. Death or incapacity of a person nominated pursuant to section 14-7653 or
designated under section 14-7659 as custodian or the disclaimer of the office by that
person.
B. A transfer made pursuant to section 14-7659 is irrevocable, and the custodial
property is indefeasibly vested in the minor. The custodian has all the rights, powers,
duties and authority provided in this article, and neither the minor nor the minor's
legal representative has any right, power, duty or authority with respect to the
custodial property except as provided in this article.
C. By making a transfer, the transferor incorporates in the disposition all the
provisions of this article and grants to the custodian and to any third person dealing
with a person designated as custodian the respective powers, rights and immunities
provided in this article.
14-7662 Care of custodial property; duties of custodian
A. A custodian shall:
1. Take control of custodial property.
2. Register or record title to custodial property if appropriate.
3. Collect, hold, manage, invest and reinvest custodial property.
B. In dealing with custodial property, a custodian shall observe the standard of
care that would be observed by a prudent person dealing with property of another and is
not limited by any other statute restricting investments by fiduciaries. If a custodian
has a special skill or expertise or is named custodian on the basis of representations of
a special skill or expertise, the custodian shall use that skill or expertise. However,
a custodian, in the custodian's discretion and without liability to the minor or the
minor's estate, may retain any custodial property received from a transferor.
C. A custodian may invest in or pay premiums on life insurance or endowment
policies on either the life of the minor if the minor or the minor's estate is the sole
beneficiary or the life of another person in whom the minor has an insurable interest
only to the extent that the minor, the minor's estate or the custodian in the capacity of
custodian is the irrevocable beneficiary.
D. A custodian at all times shall keep custodial property separate and distinct
from all other property in a manner sufficient to identify it clearly as custodial
property of the minor. Custodial property consisting of certificated securities may be
held on deposit at a stock brokerage firm or a financial institution registered in a
street name or nominee name. Custodial property consisting of an undivided interest is so
identified if the minor's interest is held as a tenant in common and is fixed. Custodial
property subject to recordation is so identified if it is recorded either by registration
or in an account designated, in the name of the custodian, followed in substance by the
words, "as a custodian for _______________ (name of minor) under the ARIZONA uniform
transfers to minors act".
E. A custodian shall keep records of all transactions with respect to custodial
property, including information necessary for the preparation of the minor's tax returns,
and shall make them available for inspection at reasonable intervals by a parent or legal
representative of the minor or by the minor if the minor is at least fourteen years of
age.
14-7663 Powers of custodian
A. A custodian, acting in a custodial capacity, has all the rights, powers and
authority over custodial property that unmarried adult owners have over their own
property, but a custodian may exercise those rights, powers and authority in that
capacity only.
B. This section does not relieve a custodian from liability for a breach of section
14-7662.
14-7664 Use of custodial property
A. A custodian may deliver or pay to the minor or expend for the minor's benefit as
much of the custodial property as the custodian considers advisable for the use and
benefit of the minor, without court order and without regard to either the duty or
ability of the custodian personally or of any other person to support the minor or any
other income or property of the minor which may be applicable or available for that
purpose.
B. On petition of an interested person or the minor if the minor is at least
fourteen years of age, the court may order the custodian to deliver or pay to the minor
or expend for the minor's benefit as much of the custodial property as the court
considers advisable for the use and benefit of the minor.
C. A delivery, payment or expenditure made pursuant to this section does not affect
an obligation of a person to support the minor.
14-7665 Custodian's expenses, compensation and bond
A. A custodian is entitled to reimbursement from custodial property for reasonable
expenses incurred in the performance of the custodian's duties.
B. Except for a person who is a transferor pursuant to section 14-7654, a custodian
has a noncumulative election during each calendar year to charge reasonable compensation
for services performed during that year.
C. Except as provided in section 14-7668, subsection F, a custodian need not give a
bond.
14-7666 Exemption of third person from liability
A third person in good faith and without court order may act on the instructions of
or otherwise deal with a person purporting to make a transfer or purporting to act in the
capacity of a custodian and, in the absence of knowledge, is not responsible for
determining:
1. The validity of the purported custodian's designation.
2. The propriety of, or the authority under this article for, any act of the
purported custodian.
3. The validity or propriety pursuant to this article of any instrument or
instructions executed or given either by the person purporting to make a transfer or by
the purported custodian.
4. The propriety of the application of any property of the minor delivered to the
purported custodian.
14-7667 Liability to third persons
A. A claim based on a contract entered into by a custodian acting in a custodial
capacity, an obligation arising from the ownership or control of custodial property or a
tort committed during the custodianship may be asserted against the custodial property by
proceeding against the custodian in the custodial capacity, whether or not the custodian
or the minor is personally liable.
B. A custodian is not personally liable for either:
1. A contract properly entered into in the custodial capacity unless the custodian
fails to reveal that capacity and to identify the custodianship in the contract.
2. An obligation arising from control of custodial property or for a tort committed
during the custodianship unless the custodian is personally at fault.
C. A minor is not personally liable for an obligation arising from ownership of
custodial property or for a tort committed during the custodianship unless the minor is
personally at fault.
14-7668 Renunciation, resignation, death or removal of custodian; designation of successor
A. A person nominated pursuant to section 14-7653 or designated pursuant to section
14-7659 as custodian may decline to serve by delivering a valid disclaimer to the person
who made the nomination or to the transferor or the transferor's legal
representative. If the event giving rise to a transfer has not occurred and no
substitute custodian who is able, willing and eligible to serve was nominated pursuant to
section 14-7653, the person who made the nomination may nominate a substitute custodian
pursuant to section 14-7653. Otherwise the transferor or the transferor's legal
representative shall designate a substitute custodian at the time of the transfer, in
either case from among the persons eligible to serve as custodian for that kind of
property pursuant to section 14-7659, subsection A. The custodian so designated has the
rights of a successor custodian.
B. A custodian at any time may designate a trust company or an adult other than a
transferor pursuant to section 14-7654 as successor custodian by executing and dating an
instrument of designation before a subscribing witness other than the successor. If the
instrument of designation does not contain or is not accompanied by the resignation of
the custodian, the designation of the successor does not take effect until the custodian
resigns, dies, becomes incapacitated or is removed.
C. A custodian may resign at any time by delivering written notice to the minor if
the minor is at least fourteen years of age and to the successor custodian and by
delivering the custodial property to the successor custodian.
D. If a custodian is ineligible, dies or becomes incapacitated without having
effectively designated a successor and the minor is at least fourteen years of age, the
minor may designate as successor custodian, in the manner prescribed in subsection B of
this section, an adult member of the minor's family, a conservator of the minor or a
trust company. If the minor is under fourteen years of age or fails to act within sixty
days after the ineligibility, death or incapacity, the conservator of the minor becomes
successor custodian. If the minor has no conservator or the conservator declines to act,
the transferor, the legal representative of the transferor or of the custodian, an adult
member of the minor's family or any other interested person may petition the court to
designate a successor custodian.
E. A custodian who declines to serve pursuant to subsection A of this section or
resigns pursuant to subsection C of this section or the legal representative of a
deceased or incapacitated custodian, as soon as practicable, shall put the custodial
property and records in the possession and control of the successor custodian. The
successor custodian by action may enforce the obligation to deliver custodial property
and records and becomes responsible for each item as received.
F. A transferor, the legal representative of a transferor, an adult member of the
minor's family, a guardian of the person of the minor, the conservator of the minor or
the minor if the minor is at least fourteen years of age may petition the court to remove
the custodian for cause and to designate a successor custodian other than a transferor
pursuant to section 14-7654 or to require the custodian to give appropriate bond.
14-7669 Accounting by and determination of liability of custodian
A. A minor who is at least fourteen years of age, the minor's guardian of the
person or legal representative, an adult member of the minor's family, a transferor or a
transferor's legal representative may petition the court for an accounting by the
custodian or the custodian's legal representative or for a determination of
responsibility, as between the custodial property and the custodian personally, for
claims against the custodial property unless the responsibility has been adjudicated in
an action pursuant to section 14-7667 to which the minor or the minor's legal
representative was a party.
B. A successor custodian may petition the court for an accounting by the
predecessor custodian.
C. The court, in a proceeding under this article or in any other proceeding, may
require or permit the custodian or the custodian's legal representative to account.
D. If a custodian is removed pursuant to section 14-7668, subsection F, the court
shall require an accounting and order delivery of the custodial property and records to
the successor custodian and the execution of all instruments required for transfer of the
custodial property.
14-7670 Termination of custodianship
The custodian shall transfer in an appropriate manner the custodial property to the
minor or the minor's estate on the earlier of:
1. The minor's twenty-first birthday with respect to custodial property transferred
pursuant to section 14-7654 or 14-7655.
2. The minor's eighteenth birthday with respect to custodial property transferred
pursuant to section 14-7656 or 14-7657.
3. The minor's death.
14-7671 Applicability
This article applies to a transfer within the scope of section 14-7652 made after
its effective date if either of the following is true:
1. The transfer purports to have been made under the ARIZONA uniform gifts to
minors act.
2. The instrument by which the transfer purports to have been made uses in
substance the designation "as custodian under the ARIZONA uniform gifts to minors act" or
"as custodian under the uniform transfers to minors act" of any other state and the
application of this article is necessary to validate the transfer.
14-7701 Restraint on transfer of income
A. Except as provided in this article, if a trust instrument provides that a
beneficiary's interest in income is not subject to voluntary or involuntary transfer, the
beneficiary's interest in income under the trust shall not be transferred and is not
subject to enforcement of a money judgment until paid to the beneficiary.
B. After an amount of income becomes immediately due and payable to the beneficiary
under the trust instrument and on petition to the court by a judgment creditor, the court
may enter an order directing the trustee to satisfy the money judgment out of that income
amount. The court in its discretion may issue an order directing the trustee to satisfy
all or part of the judgment out of that income amount. If an amount of income is due and
payable only at a future date or only on the occurrence of a future event, whether the
occurrence of that event is within the control of the beneficiary, the amount of income
is not immediately due and payable to the beneficiary. 14-7702 Restraint on transfer of principal
A. Except as provided in this article, if the trust instrument provides that a
beneficiary's interest in principal is not subject to voluntary or involuntary transfer,
the beneficiary's interest in principal shall not be transferred and is not subject to
enforcement of a money judgment until paid to the beneficiary.
B. After an amount of principal becomes immediately due and payable to the
beneficiary under the trust instrument and on petition to the court by a judgment
creditor, the court may enter an order directing the trustee to satisfy the money
judgment out of that principal amount. The court in its discretion may issue an order
directing the trustee to satisfy all or part of the judgment out of that principal
amount. If an amount of principal is due and payable only at a future date, or only on
the occurrence of a future event, whether the occurrence of that event is within the
control of the beneficiary, the amount of the principal is not immediately due and
payable to the beneficiary. 14-7703 Trust for support
Except as provided in this article, if a trust instrument provides that the trustee
shall pay income or principal, or both, for the education or support of a beneficiary,
the income or principal necessary to do this shall not be transferred and is not subject
to the enforcement of a money judgment until it is paid to the beneficiary. 14-7704 Transferee or creditor of beneficiary; power to compel trustee to pay; liability of trustee to creditor
A. If a trust instrument allows the trustee to exercise discretion in the use of
income or principal, a transferee or creditor of the beneficiary may not compel the
trustee to pay an amount that may be paid only in the exercise of his discretion.
B. If the trustee has knowledge of the transfer of the beneficiary's interest or is
served with process in a proceeding by a judgment creditor seeking to reach the
beneficiary's interest and the trustee pays to or for the benefit of the beneficiary any
part of the income or principal that may be paid only in the exercise of his discretion,
the trustee is liable to the transferee or creditor to the extent that the payment to or
for the benefit of the beneficiary impairs the right of the transferee or creditor. The
provisions of this subsection do not apply if the beneficiary's interest in the trust is
subject to a restraint on transfer that is valid pursuant to this article. 14-7705 Settlor as beneficiary; exception
A. If the settlor is a beneficiary of a trust created by the settlor and the
settlor's interest in the trust is subject to a provision restraining the voluntary or
involuntary transfer of the settlor's interest, the restraint is invalid against
transferees or creditors of the settlor. The invalidity of the restraint on transfer
does not affect the validity of the trust.
B. If the settlor is the beneficiary of a trust created by the settlor and the
trust instrument provides that the trustee shall pay income or principal, or both, for
the education or support of the beneficiary or gives the trustee discretion to determine
the amount of income or principal, or both, to be paid to or for the benefit of the
settlor, a transferee or creditor of the settlor may reach the maximum amount that the
trustee could pay to or for the benefit of the settlor under the trust instrument, not
exceeding the amount of the settlor's proportionate contribution to the trust.
C. For purposes of this section, a trust settled or established by any corporation,
professional corporation, partnership, governmental entity, trust, foundation or other
entity is not deemed to be settled or established by its directors, officers,
shareholders, partners, employees, beneficiaries or agents.
D. For purposes of this section, amounts contributed to a trust by any corporation,
professional corporation, partnership, 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, employees, beneficiaries or agents.
E. Subsections C and D do not apply to either:
1. A trust which has no valid business purpose and which has as its principal
purpose the evasion of the claims of the creditors of the persons or entities listed in
such subsections.
2. A trust which would be treated as a grantor trust pursuant to sections 671
through 679 of the internal revenue code of 1986 or corresponding provisions of
subsequent federal income tax laws.
F. Subsection E, paragraph 2 does not apply to a qualified subchapter S trust which
is treated as a grantor trust solely by application of section 1361(d) of the internal
revenue code of 1986.
G. A beneficiary of the trust is not a settlor merely because of a lapse, waiver or
release of the beneficiary's right to withdraw a part of the trust property if the
property that could have been withdrawn by exercising the right of withdrawal that
lapsed, was waived or was released either:
1. Does not exceed in value at the time of the lapse, waiver or release in any
calendar year the greater of the amount specified in section 2041(a)(2), 2514(e) or
2503(b) of the internal revenue code.
2. Was related to an inter vivos trust that was treated as qualified terminable
interest property under section 2523(f) of the internal revenue code.
14-7706 Beneficiary as trustee; validity of transfers
A. A restraint on voluntary or involuntary transfer pursuant to section 14-7701 or
14-7702 is valid even if the beneficiary or one of the multiple beneficiaries of the
trust is also one of the multiple trustees of the trust or if one of the multiple
beneficiaries is the sole trustee of the trust.
B. A restraint on voluntary or involuntary transfer pursuant to section 14-7701 or
14-7702 is invalid if the sole beneficiary of the trust is also the sole trustee of the
trust.
C. A restraint on voluntary or involuntary transfer pursuant to section 14-7701 or
14-7702 is valid even if the beneficiary has the power or right to consult with or
direct the trustee concerning the investment of all or part of the assets of the trust. 14-7707 Exceptions; discretion of court
Notwithstanding any other provision in this title, a court of competent jurisdiction
may, in its discretion, allow the interest of the beneficiary to be reached in
satisfaction of an enforceable claim against the beneficiary in the following situations:
1. By the spouse or child of the beneficiary for support, or by the spouse for
alimony.
2. For necessary services rendered to the beneficiary or necessary supplies
furnished to him.
3. For services rendered and materials furnished which preserve or benefit the
interest of the beneficiary.
4. By the United States or a state to satisfy a claim against the beneficiary. 14-7708 Liability for public support
Notwithstanding any provision in the trust instrument to the contrary, if a statute
of this state makes the beneficiary liable for reimbursement of this state or a political
subdivision of this state for public support furnished to the beneficiary or to the
beneficiary's spouse or minor child, on petition by the appropriate entity, the court may
do the following to the extent it determines is equitable and reasonable under the
circumstances:
1. If the beneficiary has the right under the trust to compel the trustee to pay
income or principal to or for the benefit of the beneficiary, order the trustee to
satisfy all or part of the liability out of all or part of the payments as they become
due, presently or in the future.
2. Whether the beneficiary has the right under the trust to compel the trustee to
pay income or principal to or for the benefit of the beneficiary, order the trustee to
satisfy all or part of the liability out of all or part of the future payments that the
trustee, pursuant to the exercise of the trustee's discretion, determines to make to or
for the benefit of the beneficiary.
3. If the beneficiary is a settlor or the spouse or minor child of the settlor and
the beneficiary does not have the right under the trust to compel the trustee to pay
income or principal to or for the benefit of the beneficiary and to the extent that the
trustee has the right to make payments of income or principal to or for the beneficiary
pursuant to the exercise of the trustee's discretion, order the trustee to satisfy all or
part of the liability without regard to whether the trustee has then exercised or may
thereafter exercise the discretion in favor of the beneficiary. 14-7709 Modification of court order
Any order entered by a court pursuant to section 14-7707 or 14-7708 is subject to
modification on petition of an interested person filed in the court where the order was
made. 14-7710 Effect of a disclaimer
A disclaimer or renunciation by a beneficiary of all or part of his interest under a
trust is not a transfer for the purposes of section 14-7701 or 14-7702.
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