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2018 Probate and Trust Legislation Update

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The process of transferring property from a deceased person to his or her beneficiaries is governed by Arizona statutes.  Although the general procedures in Arizona are similar to those in most other states because of the adoption of the Uniform Probate Code and the Uniform Trust Code, most states make their own tweaks and changes.

Senate Bill 1204 was introduced to the 2018 Arizona 53rd Legislature, 2nd Regular Session, to address several issues affecting probate and trust administration and to make some changes to Arizona’s version of the uniform laws.  The Bill was passed by both houses of the legislature and signed by the Governor, meaning the changes will become law effective August 3, 2018.  Here are some of the key revisions affecting the Arizona Probate and Trust Codes.

Arizona Probate Code Changes

Arizona Revised Statute (“A.R.S.”) § 14-2517 has dealt with the enforceability of penalty clauses in wills, commonly called “no contest” clauses and less commonly called “in terrorem” clauses.  This statute states that such clauses are not enforceable if the beneficiary bringing the challenge had “probable cause” to bring the challenge.  The Bill clarifies the challenge can come as a “contest, proceeding or action.”

The Bill also clarifies which rules are applicable to probate proceedings.  Over the past several years, the Arizona Supreme Court has established and amended the various rules that had been created by various county Superior Courts into a statewide Arizona Rules of Probate Procedure.  Accordingly, the amended A.R.S. § 14-1304 states that the Arizona Rules of Probate Procedure now apply to all probate matters.

Arizona has three methods to implement the terms of a decedent’s will.  The first is a summary administration for certain enumerated small estates.  The second is known as informal probate and, if certain requirements are satisfied, allows a matter to proceed without the involvement of a judicial officer.  Finally, there is the formal probate proceeding which involves a judge because of special circumstances or contests.  Because no hearing is mandated in informal proceedings, A.R.S. § 14-3306 does not require notice prior to beginning the process.  However, after the application has been accepted by the court, notice of the proceeding must be given to heirs or devisees.  The Bill clarifies the timing and to whom notice is given in informal probates.  If you want to learn more about the different types of probate in Arizona, watch our video.

The Bill made one major change to A.R.S. § 14-3403 which applies to a notice of hearing on the petition for a formal proceeding.  Previously, the statute required the publication of the notice one time at least fourteen days prior to the hearing.  This requirement was to notify “unknown” persons of the court proceedings.  The change implemented by SB 1204, requires notice to be published three times prior to the date set for hearing, the first of which must be at least fourteen days prior.  Publication of such notice must be made in a newspaper that has general circulation in the county where the hearing will be held.

Arizona Trust Code Amendments

The Bill adds a new section to the Arizona Trust Code, A.R.S. § 14-10113, extending the enforceability of no-contest clauses to trusts.  Courts had already ruled that Section 14-2517 (providing that a no-contest clause is unenforceable if the contestant had probable cause) applied to trusts, so that the addition of the new statute merely confirms what the Courts have been doing.

A.R.S. § 14-10105 was amended to include a reference to the newly enacted Section 14-10113.  This section of the law provides exceptions to when the terms of a trust may prevail, such as the duty of a trustee to act in good faith.  So, it is now clear that a no-contest clause in a trust is unenforceable if the person had probable cause for the contest or challenge, irrespective of provisions of the trust to the contrary.

A.R.S. § 14-10506 was amended to provide additional circumstances when a creditor or beneficiary can reach trust funds to satisfy a claim, notwithstanding a provision (i.e., a spendthrift clause) in the trust, where a trustee has failed to make a “mandatory distribution.”  Now, a “mandatory distribution” includes one that the trustee is required to make when a beneficiary reaches a specified age.

The Bill also added language to A.R.S. § 14-10813 providing that, except in limited circumstances, a trustee is no longer required to make a report to an individual who has already received what they were due under terms of the trust.

Language found in A.R.S. § 14-10819 clarifies, without making any substantive change, to a trustee’s power to appoint trust property to another trust if certain requirements are met.

Finally, the Bill amended A.R.S. § 14-11013 dealing with the use and acceptance of a certification of trust.  This statute allows for something less substantial than a complete trust document if a third-party (such as a bank or investment firm) requests proof of the terms of a trust.  The main benefit of using a certification of trust is that it typically does not include the dispositive terms of the trust.  The statute envisions that this certification will be presented to an institution that needs proof of the existence of a trust, along with who has the power to revoke and act under terms of the trust, before it will establish or modify an account.  The modifications added language that prevents such institution from requiring the dispositive trust provisions from a trustee.

The new legislation takes effect 100 days after the state legislature adjourned, in this case, August 3, 2018.  The attorneys at Berk Law Group keep up-to-date on changes to laws in the State of Arizona.  Please contact us with your questions.

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