A Good News Update: We have stirred up such a ruckus about this new bill, that it has been put on hold until further notice. So, for now, don't be concerned about this law.

The New Arizona Uniform Trust Code (AZ UTC)

Our State legislature has now inadvisedly adopted the Uniform Trust Code. With this act they have repealed one of the best laws on the books. ARS §14-7201 is repealed as of January 1, 2004. This section held that “the administration of a trust shall proceed expeditiously consistent with the terms of the trust, free of judicial intervention . . .” This law affirmed that what you described in your trust was the law.

The new law states that what you said in your trust is still followed, however, it is subject to certain exceptions and restrictions in the law. You may protect yourself, your family, and your privacy by amending your trust prior to January 1, 2004!

You will be affected by these exceptions if:

• you have a charitable organization as a beneficiary or
• if your trust is, or becomes irrevocable.

That means if you have an irrevocable trust, a revocable trust with an A/B provision, marital deduction, credit-shelter trust, or charitable remainder trust – your trust is affected. And this applies retroactively to all existing trusts!

Default Requirements: Here are some of the default requirements of the new law: (Unless your trust has specific language that prevents the application of these provisions, these requirements will apply...)

- Family member trustees must send an annual notice and other trust information to all potential beneficiaries (Including grandchildren and children) and even to their creditors (“interested persons” if requested). All beneficiaries may demand a copy of the trust and the trustee must give ALL beneficiaries information, unless you have specific language written into your trust!

- Family member trustees must send trust information annually to each named charity and to the Arizona Attorney General to protect the charity’s interest. Even if a charity is only named as a contingent beneficiary.

- Permits adult children’s ex-spouses to attack spendthrift trusts that have been established – to collect alimony!

- Imposes harsher administrative and disclosure requirement on family-run trusts than on trusts run by “banks and trust companies!”

Mandatory Requirements: Regardless of what you have written into your trust, the following provisions apply:

- You must notify “qualified beneficiaries” (current and “first-line” contingent beneficiaries) of their right to demand information about the trust.

For example: You are married and your spouse dies. Your trust has built-in provisions for an "A-B Split" in the event of the death of either spouse. You are now both the trustee and beneficiary of both the survivor's and decedents' share of the trust, with your kids as residual beneficiaries, just as planned. Under the new law you must now notify the kids so that they can monitor how much your are spending on yourself, how the investments are doing, etc.

- If you have named a charity, it automatically becomes a qualified beneficiary.

One lady client has already had me amend her trust to remove all charitable beneficiearies. I don't think the legislature considered this type of reaction when passing this law. It's bad for people and bad for charities.

- It is now a mandatory provision that the court “may take action...as may be necessary in the interests of justice”

In other words, the court can essentially rewrite your trust if it decides in its sole discretion that your trust language just isn’t fair.

- You can create spendthrift trusts to protect your gifts from the claims of your beneficiary’s creditors, but the courts will ignore them to satisfy child support and spousal maintenance orders.

For example, if you want to leave money to your son, but you know that your daughter-in-law is a gold-digger; so you create a spendthrift trust to specifically provide that its proceeds may not be used to satisfy support requirements of the daughter-in-law. Under the new AZ UTC, the court must ignore your instructions. She can get all of it...and you can’t draft around this mandatory requirement!!

Click here to see a recent news article printed in the Sun City Independent.

What we are doing:

1. I am supporting a group of lawyers who will attempt to either have the AZ UTC repealed entirely, or to exempt from it “family-administered” trusts allowing existing law to govern those trusts. But remember, the new AZ UTC has already been approved by the legislature and signed by our esteemed Governor. It is the law. It takes effect January 1, 2004, and it applies to all trusts.

• The drafters and the banking industry will claim that we are over-reacting. No we’re not. Trust law has been around for 200 years without a major change, now they are legislating unfair and, I believe, unconstitutional mandatory and default trust provisions that will interfere in the settlement of these types of trusts.
  

2.I am preparing strategies to apply to all existing trusts I’ve prepared. This will require that I meet with you individually to review the application to your trust. Ideally, I’d like to accomplish all necessary changes before year-end. I don’t know if that is physically possible, but I’ll try. Ideally, these changes need to be made prior to January 1, 2004 to avoid negative default provisions applying. Remember, this law is retroactive and will apply to any irrevocable trusts already in existence. Unless your trust is amended, these provisions will stand.

3. If you have a trust with me, please call the office to schedule a review time. I am now requiring my secretaries to allow for more time to meet with each client, so please be patient with the scheduling.

4. If you no longer work with the attorney who prepared your trust, I would be happy to serve as your attorney to review and repair or replace your current documents.


What you should do:

1. Before meeting with me, review your trust to determine if there are any other provisions you’d like changed while it is being repaired or restated. Doing this now will save you time and money when we get together;

2. Don’t shoot the messenger! I did not support these laws. In fact, in my 30 years of practice I have never seen a more preposterous law affecting trusts!

3. Prepare for some costs. Fixing your trust to protect you as much as possible from this legislation is going to require a lot of time, effort and skill. We are way ahead of the curve on this. Unfortunately, many lawyers are not even aware the law has been changed or how these changes may affect you. Regardless of costs, I definitely recommend that you do something, and do it now.

4. Call your Arizona state legislator and the Governor. Seriously. Tell them to repeal this new law. You don’t want it. You would be happy to have the administration of your trust proceed expeditiously consistent with the terms of your trust.

If you have not already updated your documents to comply with the HIPAA law AND the AZ UTC, please call my office to schedule a time for your review.
(480) 644-0070