Arizona Elder Lawyer

What To Do When You Need The Trustee To Provide An Account

Trusts are generally executed so that the Trustors maintain financial privacy during their lives and to streamline post-death distributions. Most often, a Trustee will provide information to those beneficiaries who are required to receive it. But what happens when you have an incapacitated income beneficiary (Mom has dementia) and a Trustee who does not think she needs to provide any financial accountings to anyone? For years? While she unilaterally increases the fees she pays herself, without anyone’s permission?

            Arizona Revised Statute §14-7303, effective 1/1/1974 through 12/31/2008, requires the Trustee to keep the beneficiaries of a trust reasonably informed. A beneficiary may receive, upon a reasonable request, a statement of the accounts of the Trust annually and on termination of the Trust or change of the Trustee.

            Some Trustees maintain that this law allows a Trustee to withhold information from remainder beneficiaries. A remainder beneficiary is a beneficiary who takes a portion of the assets making up the Trust after the income interest has terminated (the income beneficiary dies). However, Arizona probate law has followed California probate law through the years. California law permits a Court to require a Trustee to provide an accounting to a remainder beneficiary even though the Trust was revocable during the period for which an accounting was requested. Furthermore, during the time a Trustor was incapacitated, remainder beneficiaries have been entitled to an account for the time one was not previously provided. So, a Trustee may believe that they do not need to provide an account to anyone, but an Arizona Court may compel otherwise.

            The Superior Court has exclusive jurisdiction over the internal affairs of the Trust. A.R.S. §14-7201, effective 1/1/1974 through 12/31/2008. If you are having trouble getting information from a Trustee, you may Petition the Court in the County where the Trustee performs her duties and ask for a specific accounting. If she has acted in any way that might be questionable, she may not comply with such a request without a court order. As always, if you are going to do this, it is best to hire an attorney who handles these matters regularly.

            The above-referenced Arizona statutes were repealed on May 27, 2008, but remain effective through the end of 2008. The Legislature enacted Title 14, Chapter 11 referred to as the “Arizona Trust Code” effective after December 31, 2008. The duty to inform and report appears as A.R.S. §14-10813 in this new Chapter.

Why Have a Trust?

            Maintaining the financial care of the Trustor, the person who is making and funding the trust, is the first purpose in having a Trust.  The document can clarify how the assets are to be used during the Trustor’s lifetime.  My clients generally clarify how the assets should be used if their medical care becomes so costly that the Trust will deplete its assets.  The Trust document specifies how the Trustee may or may not invest and place desired restrictions on the investment strategy of the assets.  Basically, it is a document that allows the Trustor to control his assets at all times during his life, even if he cannot actively participate in these decisions at any given time.

            Avoiding conservatorship used to be an additional benefit to having a Trust.  With the ongoing medical advancements and lifespan of the population increasing, this purpose is becoming more of a primary reason to hold a person’s assets in a Trust.  Conservatorship proceedings in court can be costly and occur when there is great duress and emotional trauma.  They can also be very contentious.  A person can maintain control over his assets by stating in a Trust who will be his financial surrogates, Successor Trustees, if he cannot control his assets himself.  The transition of serving between the Original Trustee and the Successor Trustee should be seamless and without court involvement.

            Transferring property upon death is a third purpose in establishing a Trust.  Generally speaking, if a Trust is funded properly with all of the assets owned by the Trustor, the Trust distributions after the death of the Trustor are without court supervision.  The Probate Courts can become actively involved if there is a dispute or concern by the survivors.  But, generally, the transfers upon death are clarified with specificity.  An attorney should always be consulted by the Successor Trustee to ensure the proper handling of these distributions. 

            Tax planning is the last major reason for having a Trust as a vehicle for owning property.  The federal tax laws change regularly and the general population does not necessarily keep track of legislation and the practical effects of these laws.  State laws must be incorporated as well as federal legislation.  Trusts can be drafted properly today with provisions that give Trustees the ability to make tax elections based upon the laws in effect years in the future.  This can be a great gift to those who will be affected by tax implications of inadequate planning.

            Trusts truly are a wonderful vehicle to hold your assets.  They are best drawn up by lawyers who will listen to your desires and ask probing questions about your family situation and history, and then implement these into your plan.  Run fast and far away from cookie cutter Trusts drawn up by non-lawyers and off the shelf stationary forms.  These can be quite detrimental because of conflicting provisions and use of phrases that have legal effect but are not understood by the non-lawyer drafter.  Lawyers are regulated and generally have malpractice insurance so that you are protected.  Docs in a box have neither.