Last week the Arizona legislature approved (and sent to Governor Napolitano for signature) House Bill 2806, the Arizona Trust Code. The Governor is expected to sign the surprisingly uncontroversial bill, which will then go into effect as of January 1, 2009.

This is not the first time Arizona has considered, even passed, a version of the Uniform Trust Code. In 2003 the legislature made Arizona the third state to pass a version very closely modeled on the uniform law, but two years later Arizona was repealing the new law even before it became effective. Concerns at the time centered on notice requirements of the Code. Opponents at the time complained that it would, for example, require surviving spouses to give full disclosure to their own children after all or part of a joint marital trust became irrevocable upon the death of the first spouse.

After extensive revisions, the newly-christened Arizona Trust Code (not to be confused with the Uniform Trust Code, which in any event is becoming considerably less "uniform" with each enactment) was reintroduced at the behest of the State Bar of Arizona’s Probate and Trust Section. The new law collected a handful of revisions -- one of them penned by us -- before its near-unanimous adoption by the legislature.

What will the new Trust Code mean for Arizona residents, lawyers and trustees? A number of important changes:

"Special Needs" trusts will be better recognized under Arizona state law, and it will be more clear that a special needs beneficiary’s creditors can not attack even a self-settled special needs trust. This provision, not surprisingly, is the one added by our firm, working with the Arizona Chapter of the National Academy of Elder Law Attorneys.

Notice requirements will be stronger. When a trust becomes irrevocable (for example, on the death of one or both of the signers of a trust -- though not all trusts become irrevocable upon the first death) the trustee will be required to give notice to the ultimate trust recipients. This provision has been watered down considerably from the earlier enactment, however. If a trust is drafted to specifically identify the persons to receive the notice, it may not need to be sent to every eventual beneficiary.

Trust revisions will be easier, and the procedures clearer. Some kinds of revisions can be made by agreement among the trustee and beneficiaries, while others may still require court approval. In either event, the rules will be simpler.

We will devote several future Elder Law Issues to this far-reaching new law before its 2009 effective date. We will also highlight some easy ways for our clients, trustees and trust settlors to determine whether they need to make changes before the new law imposes some changes upon them. We will also update you on other changes enacted in this busy season for new legislation -- including another Arizona legislative enactment which makes subtle changes to the guardianship and conservatorship process. Stay tuned for more details.

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