Archives for June 2021

There is often a great deal of confusion for individuals who have been nominated as a personal representative or appointed as a trustee. They may have little understanding of what their new role means and may lack the knowledge about all their duties under Arizona probate and trust law. This can lead to confusion, disagreement, and costly litigation.So, it’s helpful to know some important terms: An individual or entity in charge of administering or managing property held by a trust is called the “trustee.” The “trust” is a legal entity created by one or more persons called “trustors,” who appointed the trustee to manage the trust’s assets according to the terms of the trust. Upon creating a trust, the trustors transferred ownership of their properties and financial accounts to the trust. The trustee then manages those assets for the benefit of the trustors, or the beneficiaries named in the trust. The trustee is bound by provisions of the trust, as well as “fiduciary duties” that are imposed on the trustee by Arizona law. The trustee has a fiduciary relationship with the trust beneficiaries. This fiduciary relationship imposes duties on the trustee that are subject to a high standard of trust, performance, and responsibility.What are the Fiduciary Duties of a Trustee?A fiduciary is someone who accepts responsibility for taking care of the needs or property of another person for the benefit of that other person. The fiduciary serves in a role of trust, which becomes critical when the person receiving the services is vulnerable or incapacitated.The duties of the trustee can include, but are not limited to:Duty to Administer: A trustee must administer the trust in good faith, in accordance with its terms and the interests of the beneficiaries.Duty of Loyalty: A trustee must administer the trust solely in the interests of the beneficiaries.Duty of Impartiality: A trustee must act impartially in investing, managing, and distributing the trust property with regard to the beneficiaries’ interests.Duty of Prudent Administration: A trustee must administer the trust as a prudent person would, using reasonable care, skill, and caution.Duty to Comply with the Prudent Investor Rule: A trustee who invests and manages trust assets must comply with the prudent investor rule requirements of Arizona statutes (A.R.S. 14-10901 through 14-10908).Duty to Incur Only Reasonable Costs: A trustee may only incur costs that are reasonable in relation to the trust property, the purposes of the trust, and the skills of the trustee.Duty to Use Special Skills: If the trustee has special skills or expertise, he or she must use those special skills or expertise in the administration of the trust.Duty to Control and Protect Trust Property: A trustee must take reasonable steps to take control of and to protect trust property.Duty to Keep Records and Identify Trust Property: A trustee must keep adequate records of the administration of the trust and must keep trust property separate from the trustee’s own property and distinguishable from property from other trusts.Duty to Enforce and Defend the Trust’s Claims: A trustee must take reasonable steps to enforce claims of the trust and to defend claims against the trust.Duty to Collect Trust Property: A trustee must take reasonable steps to compel delivery of trust property and to redress a breach of trust known to the trustee to have been committed by a former trustee.Duty to Inform and Report Trust-related information to Beneficiaries: Unless the trust provides otherwise, a trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust. This may include providing annual reports to distributes or beneficiaries.It’s critical for a trustee to have a strong understanding of all their duties because failure to properly administer the trust, or failure to comply with the applicable duties, could expose them to claims of breach of trust or requests for removal as trustee, among other claims. A trustee is permitted to hire an attorney to help guide them in fulfilling their duties and exercising their powers as trustee.If you’re in the process of setting up your trust, it’s important to appoint a trustee that you can trust to carry out your wishes and communicate effectively with your beneficiaries. If you don’t choose wisely the trustee’s failure to uphold their responsibilities can create immediate legal conflicts and can jeopardize the plan you put in place.If you’ve been appointed as a trustee or are in the process of setting up a trust, contact Brown & Hobkirk, PLLC with any questions or concerns.What Does the Duty of Loyalty Mean in Arizona?You often hear about the duty of loyalty, so let’s expand on this topic with a little more information and a helpful example.We mentioned above that this duty means that the trustee should always act to administer the trust solely in the interests of the beneficiaries. When you serve as a trustee, you are serving for the benefit of someone other than yourself. The trustee should always put the interests of the trust first and should not enter into any transactions that gives the trustee the opportunity to benefit themselves, especially if it comes at the expense of the trust. Essentially, the trustee must be loyal to the trust.As a trustee, you should also be aware if there are any conflicts between your personal interests/transactions and the trust. Arizona law does allow a trustee to enter into a personal transaction with the trust, but only if all the beneficiaries are notified and given the opportunity to take a position on the proposed transaction and the court expressly grants permission. If you fail to seek the court’s permission on any potential conflicts, you will most likely have an uphill legal battle if challenged by the beneficiaries.Example: Aaron been named trustee of his brother Scott’s estate. Scott had numerous real estate properties in his trust, including a lakeside home which the brothers used for family vacations. Scott’s trust specifically states that the lakeside property should be held in trust for his daughter’s use and enjoyment. Aaron decides that he would like to buy this property from the trust, so he sells it to himself at fair market value. Was Aaron’s transaction a violation of his duties as trustee? Yes. By selling the trust property to himself, Aaron has taken advantage of the trust. Aaron didn’t act solely in the interest of the beneficiaries, and he didn’t put the interests of the trust first. By doing so, he has violated his fiduciary duty as trustee. Aaron may have thought that he was being fair by paying fair market value, but his decision to sell the property to himself was in direct conflict with the trust provisions. What other actions should Aaron have taken? Aaron should have administered the trust in the best interest of the beneficiary (Scott’s daughter). Alternatively, he should have asked for the court’s permission for the transaction and notified all the beneficiaries (giving them the opportunity to take a position on the sale of the land).Contact UsAdministering a trust is a serious responsibility. If you have been appointed as a trustee, the best course of action is to seek the help of an experienced attorney. It’s important to note that the trust will pay reasonable costs associated with your obtaining legal advice. However, if you fail to secure legal advice, you could end up violating your duties as a trustee and be forced to pay out of your own pocket. The cost of obtaining sound legal advice now will be far less than having to pay for any mistakes made later.The attorneys at Brown & Hobkirk, PLLC are ready to help you with any questions you may have about the duties of a trustee. We invite you to schedule a consultation at one of our conveniently located offices in Scottsdale, Phoenix, Peoria, Chandler, and Tucson.Robert HobkirkRobert Hobkirk is a partner at the law office of Brown & Hobkirk, PLLC. He represents clients in legal matters involving trusts and estates, wills, probate law, and estate litigation, among other areas.Read Morewww.brownhobkirk.com/about-us/robert-hobkirk/

Archives for June 2021

Duties and Responsibilities of a Trustee in Arizona