2009 Arizona Trust Code Changes

In January of 2009, changes in the Arizona Trust Code went into effect. Those changes are listed below. If your revocable trust dates from before January 2009, you need to have it looked over by an attorney to avoid the potentially negative problems outlined below. An amendment to update your trust for the 2009 changes to the Arizona Trust Code is inexpensive. We would be happy to review your trust to let you know if it is up to date with these issues.

• Notice must be given to all potential beneficiaries unless drafting in the trust states otherwise. This means the surviving spouse must give an annual accounting to all potential beneficiaries. Most surviving spouses think it is none of the beneficiary’s business what the financial situation is. Another problem this creates is that beneficiaries may change their lifestyles knowing they are going to be receiving an inheritance. (Trust Babies)
• Settlor’s Intent: After irrevocability due to death or incapacitation, a court can modify or terminate a trust if the court believes that a modification or termination is necessary to acheive the trust's material purposes. The new changes allow the Settlor to explicitly state the material purposes of the trust in order to keep the court from guessing as to what those purposes might have been. This can help preserve your true intent in creating the trust.
• Alternative Dispute Resolution (ADR). You can require that any disputes arising from your trust be resolved through ADR instead of an expensive court proceeding.
• Rule Against Perpetuities has been extended from 21 years to 500 years, allowing for long-term family planning. This may provide an estate tax savings for future generations.
• Trust Certification Form. This form must be revised to make it mandatory that any entity you provide it to must take the form instead of requiring you to provide the entire trust document.

Things to Consider When Plannning

• Do all the parties get along?
• Do you have a blended family?
• Is there a need to protect the surviving spouse or the beneficiaries?
• Do you want your child to act as successor trustee, or an independent third party?
• Does one beneficiary have different requirements than another beneficiary?
• Do you have a special needs child? Be sure they don’t lose their government benefits after receiving an inheritance.
• Do you have one child who could use the money more than another? Be sure to explain why in your estate planning so that the beneficiaries understand in the future.
• Who do you currently give support to, or who would you anticipate giving support to in the future? Kids? Grandkids? Elderly Parent?
• If something happened to you, who would raise your children? Where?
• Even if you have a small estate, this is a major reason for completing a will.
• If you name a sister and brother-in-law to act as guardian, what if your sister dies? What if they divorce?
• If your successor trustee is the same person as your guardian – there are no checks and balances. In the alternative, does your successor trustee get along with your guardian?
• Do you have any unfinished business to take care of?
• Do you own a business? Who will take over in the interim or permanently?
• Do you wish to make plans for your pets?
• At what age do you want your beneficiaries to have unfettered control of their inheritances?
• Don’t create trust-fund babies. You can implement rewards and incentives while still leaving flexibility for the unexpected.
• Do you wish to disinherit anyone?
• Who inherits if your named beneficiary predeceases you? Follow the blood line?
• A case for following the blood line: you never know when your child might get divorced; the divorce rate is close to 50% these days. Some long-standing marriages are being tested by current economic situations. You may think of your son- or daughter-in-law as your own child. Plan for the possibility of divorce though. If you name an in-law as a direct beneficiary, and they get divorced, the money you gave them goes with the former in-law. You son or daughter, and possibly your grandchildren, may end up losing out.
• Do you wish to impose conditions on your beneficiary’s ability to inherit?
• What if they are abusing finances, alcohol or drugs?
• What is most important to you for your beneficiary to achieve?
• Who gets your “stuff”? Quite often it is the little stuff of sentimental value that creates dissention among the beneficiaries instead of the money. (See personal story here)
• Do you need life insurance to cover estate taxes so that the beneficiaries don’t have to have a fire-sale?
• This is especially important when real-estate and farm land is involved.

What Can Go Wrong?

Click here for a discussion of what can go wrong without proper estate planning.

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