Changes to Trustee Reporting Requirements Under The Arizona Trust Code
October 28, 2009
If you are currently or soon may be serving as the trustee of an irrevocable trust you should be aware that the Arizona Trust Code (ATC), which became effective January 1, 2009, imposes certain new obligations on trustees of irrevocable trusts.
Prior to January 1, 2009, ARS §14-7303 required the trustee to provide beneficiaries reports of the trust activity only upon request of a beneficiary. Who qualified as a beneficiary entitled to request information was ambiguous, but current income beneficiaries were clearly within the class of beneficiaries entitled to information.
Now the ATC defines both qualified and permissible beneficiaries to distinguish who must receive information and who may receive information. Generally qualified beneficiaries are current income beneficiaries and those who become entitled to principal or income upon the death of the current income beneficiary.
Unless the trust agreement provides otherwise, the trustee of an irrevocable trust must provide a report to the qualified beneficiaries, permissible beneficiaries, and other beneficiaries who request it.
The report must be provided at least annually. The first reporting period ends December 31, 2009.
The report must contain the following information:
- A list of the trust property and the market value of such property, if feasible.
- Liabilities
- Receipts and disbursements.
The report need not be prepared according to generally accepted accounting principles (GAAP). There are no guidelines on what form the report must take, but a modified form loosely based on the form used to file a judicial accounting will probably be sufficient. The outline for such a report is as follows:
Schedule A = Opening inventory. A listing of the assets and their respective values.
Schedule B = List of outstanding debts.
Schedule C = List of all receipts
Schedule D = List of all expenditures
Schedule E = Summary of all other schedules ending with an ending balance.
An alternate format could be as simple as providing copies of account statements for the year (raw data).
If assets are held other than insured brokerage or bank accounts, a short narrative report describing the assets and their characteristics is probably appropriate.
Who Doesn’t Need a Trust?
October 21, 2009
I am a trust based estate planning attorney. That means for a variety of reasons, I believe that most clients are best served if the centerpiece of their estate plan is a trust.
However, that said, a friend who recommends my services to his clients recently complained that after extolling the virtues of trusts and my services to his clients, he discovered that I had not recommended a trust based estate plan. He wondered aloud if I had wandered from the true path.
Because in 1995 Arizona was the first among, at last count, 12 states to create a beneficiary deed statute, you may pass your assets at your death without a Will or a Trust. Using a combination of a beneficiary deed for each parcel of real property, transfer or payable on death (TOD or POD) designations for investment or bank accounts, and naming competent adults in your beneficiary designations for retirement accounts, life insurance policies, and annuity contracts, you can avoid both probate and a trust administration. Using an affidavit for collection of personal property will allow motor vehicles to be transferred and other items such as jewelry and collectibles can be distributed among your heirs by agreement.
This plan can work well for you if the objects of your bounty are competent adults without spendthrift habits or creditor problems and, in the case of real estate transfers, if the several recipients will cooperate with each other. The problem is that in many families more structure is necessary to handle interfamily affairs and personalities and in some cases lifetime protective trusts will benefit your family more than the simplicity of the “no trust” or “no probate” plan described above.
The plan takes some prior thought and regular periodic review if you acquire new assets or the characteristics of your intended recipients change, but all other things being equal, these arrangements with adequate financial and health care powers of attorney may be all you need to have a viable estate plan. I encourage you to also have a Will that will be effective if necessary to address unforeseen circumstances or otherwise omitted assets, but in all likelihood, no probate proceeding will be required and the Will will not be used.
Of course if you don’t fit the typical profile or have additional concerns, then you will be better served by a good inter vivos trust as part of your plan and you’ll make my friend happy.
Why Updating Your Estate Plan Is So Important
October 3, 2009
I am frequently asked why I emphasize keeping estate plans updated. There are actually two answers to this question; the standard answer, and a more practical reason. Both answers are true, but one is much more personal.
The standard answer to why update your estate plan comes in five related parts:
- Laws Change. Federal estate tax laws change with uncomfortable regularity, especially when a new president takes office. State laws affecting estates change much less frequently, but still often enough to need regular review.
- Circumstances Change. You have more children or grandchildren, minors become adults, you have more or less wealth to distribute. Life is constantly changing and your estate plan must change with it.
- Financial Powers of Attorney Become Stale. Somewhere between 6 months to 3 years is the standard shelf life of a financial power of attorney, and courts and banks are reluctant to accept them after that. Even if nothing else has changed, your Power of Attorney should be signed regularly refreshed.
- You May Move to a Different Jurisdiction. Different states have different laws. Moving from one state to another requires a review and update of your plan.
- Attorneys Get Better. Just like you, attorneys are constantly learning and improving. The advice we gave you five years ago was good. The advice we have for you now is better.
These are the standard reasons to update your estate plan. But there’s a better practical reason that is quite different and much more personal — it has to do with family. Few of us are lucky enough to have a family dynamic that is structurally and emotionally functional. I have met some couples of modest wealth, in their first marriage, with responsible adult children; but I have met more couples who are: in second marriages, with blended families, with one or more child with destructive habits or tendencies, or worried about a son or daughter in-law (the “outlaws”) whose motives conflict with our own values. For these families, change will come swiftly and be overwhelming; frequent reviews and updates will ensure that your estate plan keeps up with these swift changes and continues to function as you intended — protecting you, your spouse, and all your children, even if it is sometimes from themselves.