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The general duty of a trustee is to administer the trust expeditiously for the benefit of the beneficiaries. The trustee must observe the standard in dealing with the trust assets that would be observed by a “prudent person” dealing with the property of another. If the trustee has special skills or is named trustee on the basis of representations of special skills or expertise, she is under a duty to use those skills.
The duties of a trustee are discussed in greater detail below.
Duty to Inform and Report
Unless the trust instrument provides otherwise, a trustee must keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless the trustee determines that it is unreasonable under the circumstances to do so, a trustee must promptly respond to a beneficiary’s request for information related to the administration of the trust.
A qualified beneficiary is:
- a person currently authorized to receive income or principal from the trust;
- a person who would be authorized to receive income or principal from the trust if the interests of the person currently authorized to receive income and principal immediately ceased;
- a person who would be authorized to receive income or principal from the trust if the trust immediately terminated.
A trustee must also:
on request of a beneficiary, promptly furnish to the beneficiary a copy of the portions of the trust instrument that are necessary to describe the beneficiary’s interest;
within sixty days after accepting a trusteeship, notify the qualified beneficiaries of the acceptance and of the trustee’s name, address and telephone number;
within sixty days after the date the trustee acquires knowledge of the creation of an irrevocable trust or that a formerly revocable trust has become irrevocable (whether by the death of the settlor or otherwise), notify the qualified beneficiaries of:
- the trust’s existence
- the identity of the settlor or settlors,
- the trustee’s name, address and telephone number,
- the right to request a copy of the relevant portions of the trust instrument and a trustee’s report
- notify the qualified beneficiaries at least thirty days in advance of any change in the method or rate of the trustee’s compensation.
A trustee must send to the persons entitled to trust income or principal and to other beneficiaries who request it, at least annually and at the termination of the trust, a report of the trust property, liabilities, receipts and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and, if feasible, their respective market values. On a vacancy in a trusteeship, unless a co-trustee remains in office, a report must be sent to the qualified beneficiaries by the former trustee.
A beneficiary may waive the right to a trustee’s report or other information otherwise required to be furnished.
Duty to Provide Bond
A trustee is required to give bond to secure performance of the trustee’s duties only if the court finds that a bond is needed to protect the interests of the beneficiaries or is required by the terms of the trust and the court has not dispensed with the requirement. The court may specify the amount of a bond, its liabilities and whether sureties are necessary. The court may modify or terminate a bond at any time.
Notwithstanding the terms of the trust, the following entities are not required to give a bond:
- a national banking association;
- a holder of a banking permit under the laws of Arizona;
- a savings and loan association authorized to conduct trust business in Arizona;
- a title insurance company qualified to do business under the laws of Arizona;
- a trust company holding a certificate to engage in trust business from Arizona’s superintendent of banks;
- the public fiduciary.
Appropriate Place of Administration
A trustee is under a continuing duty to administer the trust at a place appropriate to the purposes of the trust and to its sound, efficient management. If the principal place of administration becomes inappropriate for any reason, the court may enter an order furthering efficient administration and the interests of beneficiaries, including, if appropriate, removal of the trustee and appointment of a trustee in another state. Trust provisions relating to the place of administration and to changes in the place of administration or of trustee control will govern, unless compliance would be contrary to efficient administration or the purposes of the trust. Views of adult beneficiaries will be given weight in determining the suitability of the trustee and the place of administration.
Liability to Third Parties
Unless otherwise provided in the contract, or unless the trustee fails to reveal his or her representative capacity and identify the trust estate in the contract, a trustee is not personally liable on contracts properly entered into in the trustee’s fiduciary capacity in the course of administration of the trust estate.
A trustee is, however, personally liable for obligations arising from ownership or control of property of the trust estate or for torts committed in the course of administration of the trust estate, if the trustee is personally at fault.
Claims based on contracts entered into by a trustee in his or her fiduciary capacity, on obligations arising from ownership or control of the trust estate, or on torts committed in the course of trust administration, may be asserted against the trust estate by proceeding against the trustee in her fiduciary capacity, whether or not the trustee is personally liable.
Proceedings against Trustee
A claim for breach of trust by a beneficiary must be asserted no later than one year from the date he or she receives a statement disclosing the existence of a potential claim for breach of trust and has been informed of the deadline to initiate an action for breach of trust. A report adequately discloses the existence of a potential claim for breach of trust if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence. If this does not occur, a beneficiary must commence a proceeding for breach of trust within two years after either the removal, resignation or death of the trustee; the termination of the beneficiary’s interest; or the termination of the trust, whichever occurs first.
A beneficiary is deemed to have received a final account or statement if, being an adult, it is received by him or her personally or if, being a minor or disabled person, it is received by his or her representative.
The above article is an excerpt from Estate Planning in Arizona: What You Need to Know, 2nd Edition (Wheatmark, 2019), by Donald A. Loose, republished with the author’s permission.
Disclaimer: Laws change constantly. Specific legal advice should be obtained regarding any legal matter. The information contained on this website does not constitute legal advice and no attorney-client relationship is created.
Donald A. Loose is an Arizona attorney, and the author of Arizona Laws 101: A Handbook for Non-Lawyers, and Estate Planning in Arizona: What You Need to Know. Mr. Loose is a regular guest on radio shows featuring local newsmaker interviews. He may be contacted at firstname.lastname@example.org.