House of
Representatives
HB 2333
Arizona trust code
Sponsor: Representatives Boone
HB 2333 makes revisions and clarifications to the group of statutes known as the Arizona Trust Code.
History
The National Conference of Commissioners on Uniform State Laws (NCCUSL) is a nongovernmental organization that was established to draft model laws and promote enactment of legislation on a wide range of legal issues to achieve statutory consistency among all states. In 2000, the NCCUSL adopted the Uniform Trust Code (UTC). The UTC is a comprehensive act that attempts to modernize the establishment of trusts, address appointment of trustees, outline the duties and powers of trustees and provide legal remedy for breach of duties. In 2003, the NCCUSL Commissioner, in conjunction with the State Bar of Arizona, recommended the adoption of UTC to Arizona law. The UTC was passed by the Legislature and signed by the Governor on May 12, 2003 with an effective date of January 1, 2004 (Laws 2003, Chapter 213).
Subsequent to passage of the UTC, various members of the public expressed concerns about some of its provisions. In response to their concerns, during the 2003, Second Special Legislative Session, the Legislature voted to postpone the effective date of the UTC until January 1, 2006 to give interested parties time to resolve any differences and prepare mutually acceptable language. (Laws 2003, Second Special Session, Chapter 7). In 2004, the legislature passed HB 2516, which repealed the provisions established by the enactment of the UTC and restored the laws that regulated trusts prior to the adoption of the UTC. (Laws 2004, Chapter 148).
After the repeal of the Uniform Trust Code in 2004, the Probate and Trust Law Section of the State Bar of Arizona created the Arizona Trust Code Committee (committee) to draft new legislation. The new legislation, HB 2806, was called the Arizona Trust Code and passed through the legislature and was signed into law in 2008.
Provisions
· Extends the Rule against Perpetuities relating to non-vested property interests and trusts for specific non-charitable purposes.
· Allows a personal representative to create a limited liability company to hold any business or venture in which a decedent was engaged at the time of his or her death.
· Permits a personal representative to consider community property held outside a decedent’s estate in making a division or distribution of community property held in the decedent’s estate so the distribution is based on equal value but not necessarily proportionate.
· Lets a trustee consider whether a trust has been converted to a unitrust in determining how much power to exercise over the trust and its beneficiaries.
· States that the terms of a trust will not prevail over the power of a court to take an action consistent with the trust instrument.
· Explains that if a trustee transfers a trust’s principal place of administration to another state or outside of the U.S., the law governing the trust may be subject to change.
· Removes the provision in statute that makes non-judicial settlement agreements applicable only to trusts that became irrevocable on or after January 1, 2009.
· Prohibits a trust created by a written instrument from being amended or revoked by anything other than a written instrument executed by the settlor.
· Establishes that the trustee may modify a trust agreement to change the name of the trustee or beneficiary if the trustee or beneficiary’s name has been legally changed.
· Stipulates that the following amounts and property are not deemed to have been contributed by a settlor:
· An irrevocable inter vivos marital trust that is treated as qualified terminable interest property, if the settlor is a beneficiary after the death of the beneficiary’s spouse.
· An irrevocable inter vivos marital trust that is treated as a general power of appointment trust under the Internal Revenue Code if the settlor is a beneficiary of the trust after the death of the beneficiary’s spouse.
· An irrevocable inter vivos trust for the settlor’s spouse that does not qualify for the gift tax marital deduction if the settlor is a beneficiary after the death of the beneficiary’s spouse.
· An irrevocable inter vivos trust created by a person for the benefit of that person’s spouse.
· Determines that a person is a beneficiary whether named under the initial trust instrument, through the exercise by that person’s spouse or another person of limited or general power of appointment.
· Exempts a trust from creditor’s claims against the settlor if:
· The beneficiary holds a general power of appointment exercisable in favor of the holder’s estate or a limited power of appointment.
· The trust is an irrevocable inter vivos marital trust that is treated as qualified terminable interest property under the Internal Revenue Code.
· The trust is an irrevocable inter vivos marital trust that is treated as a general power of appointment trust under the Internal Revenue Code.
· Clarifies that the section of law relating to trust protectors does not apply to trust that became irrevocable before January 1, 2009 if the trust instrument allows the settler to remove and replace the trust protector.
· Allows a trustee, under certain conditions, to appoint part or the entire estate trust in favor of a trustee of a different trust, unless the terms of the trust expressly provide otherwise.
· The original trustee must have discretion to make distributions, regardless of whether a standard is provided in the instrument or agreement, for the benefit of a beneficiary who is entitled to the income of the trust.
· The appointment of the estate trust must:
· Not reduce any nondiscretionary income payment to a beneficiary.
· Not alter any nondiscretionary annuity or unitrust payment to a beneficiary.
· Be in favor of the beneficiaries of the trust.
· Result in any ascertainable standard applicable for distributions from the trust being the same or more restrictive standard applicable for distributions from the recipient trust when the trustee exercising the power is a possible beneficiary under the standard.
· Not adversely affect the tax treatment of the trust, the trustee, the settler or the beneficiaries.
· Not violate the limitations on validity.
· The power to appoint applies only to trusts governed by Arizona or a trust whose governing jurisdiction is transferred to Arizona.
· Allows the trustee to request that the court approve the appointment prior to or after the appointment.
· Excludes from the definition of profit pursuant to damages in absence of breach by a trustee:
· Reasonable compensation to which the trustee is entitled.
· Compensation or fees permitted pursuant to a trustee or trust protector.
· Reasonable compensation or fees for services that the trustee provides in the normal course of business and that are typical in the geographic area where the trust is administered.
· Permits a unitrust amount to be determined by reference to the net fair market value of the trust’s assets in one year or more than one year.
· States that distribution of a fixed percentage unitrust amount does not constitute a fundamental departure from state law, but instead is considered a distribution of all the income of the total return unitrust.
· Allows an express total return unitrust to provide a mechanism for changing the unitrust percentage unless that power is not specifically or by reference to statute granted by the unitrust.
· Stipulates that a distribution of the fixed percentage of between three and five percent per year reasonably apportions the total return of a total return unitrust.
· Explains that an express total return unitrust is considered to have paid out all of the income and principal of the unitrust if the unitrust provides for a fixed percentage payout of more than five percent per year.
· Authorizes a trust document to give a trustee the discretion to adopt a practice of treating capital gains as part of the unitrust distribution so long as the distribution exceeds the net accounting income.
· Asserts that unless the trust document state otherwise, the distribution of the unitrust amount will be considered to be made, in order of priority, from:
· Net accounting income determined as if the trust were not a unitrust.
· Ordinary income not allocable to net accounting income.
· Net realized short-term capital gains.
· The principal of the trust estate.
· Allows a trust document to provide that assets used by the trust beneficiary be excluded from the fair market value for computing the unitrust amount.
· Denotes as separate property a contribution to an irrevocable trust that has life insurance on the person making the contribution as its principal asset if the spouse of the insured is the primary beneficiary of the trust.
· Includes legal defense trusts in the definition of a trust.
· Defines distributee, disabled person and express total return unitrust.
· Makes technical and conforming changes.
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Forty-ninth Legislature
First Regular Session 3 July 9, 2009
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