Today I revised my brief article summarizing what debts the survivors are responsible for after a death in Arizona.
Arizona Law Update for Living Trusts
The Arizona law permitting use of a Certification of Trust when dealing with financial institutions was amended effective August 3. Now A.R.S. 14-11013(E) says a third party may not demand a copy of the entire trust document (including the dispositive provisions) without first providing a verified statement stating a good faith reason for the demand.
Also, A.R.S. 14-11013(H) makes the third party liable for damages, costs, expenses, and attorney fees if a court determines the request was not made in good faith or did not comply with subsection E.
The public policy behind the law (enacted in 2008) is to allow for privacy of personal financial information. Bouman Law Firm provides an up-to-date certification of trust to every client establishing a revocable living trust.
The Arizona legislature recently amended the law on Certification of Trusts (A.R.S. 14-11013). Two things to know:
1. When a Trustee provides a Certification of Trust to a financial institution, it may not require the Trustee to provide copies of excerpts from the trust document that contain dispositive provisions (i.e., who gets what) or successor Trustee names (i.e., who will manage the trust upon death of Trustor) unless the financial institution also provides a verified statement that states a reasonable basis for the request.
2. A financial institution is now liable for damages, costs, expenses, and attorney fees if a court determines that it did not act in good faith or did not comply with the need for a verified statement in demanding a copy of the trust document.
In summary, the law change reinforces the legislature's intent to simplify the process of doing business with a trust. When buying or selling property using a trust, or opening or re-titling an account into a trust, a Trustee should only have to provide a copy of the Certification of Trust and not the entire document. Financial institutions that still request a copy of the entire trust document are acting unreasonably and, in some cases, against the law.
See Arizona SB 1204, signed March 29, 2018 by Governor Ducey
Summary: Increase in federal estate tax exemption affects testamentary powers of appointment.
If your estate plan includes an inheritance protection trust for a child or other beneficiary, the provision likely gives the beneficiary a testamentary power of appointment. This permits the beneficiary, effective upon the beneficiary’s death, to redirect any remaining trust assets among individuals or charities of the beneficiary’s choice. When avoiding estate tax is a major concern, it makes sense to limit the power of appointment in a manner that restricts the beneficiary from using trust assets to pay off personal debts. This allows trust assets to pass to the successor beneficiaries free of estate tax, which is important for large estates. But the limited power of appointment also prevents the successor beneficiary from getting a step-up in income tax basis, which can increase capital gains tax upon sale of trust assets.
The current estate tax exemption, now dramatically higher than it was in 2017, eliminates the estate tax as a planning issue for all but the very wealthy. This means it makes more sense to refrain from using limited powers of appointment in inheritance trusts. Why? The reason is because the value of potentially avoiding estate tax is outweighed by the more likely benefit of reducing income tax.
The default law in Arizona leaves inheritance outright and free of trust. However, if the beneficiary is incapacitated or under age 21, the Personal Representative or Trustee, as the case may be, will have discretion to distribute inheritance by any one or more of the following methods:
Option #1 Hold in temporary inheritance trust for beneficiary with all remaining assets distributed outright when beneficiary attains  years of age.
Option #2 Hold in temporary inheritance trust for beneficiary with assets distributed in stages by age. For example, 1/3 of trust assets at age , 1/2 of remaining assets at age , and all remaining assets at age .
Option #3 Hold in temporary inheritance trust for beneficiary with assets distributed in stages by time. For example, 1/3 of trust assets immediately, 1/2 of remaining assets  years later, and all remaining assets  years later.
Option #4 Hold in permanent inheritance trust for beneficiary with assets managed by an independent or professional trustee. For example, a trust for mentally-disabled adult beneficiary or beneficiary with substance abuse problems.
Option #5 Hold in permanent inheritance trust for beneficiary, but permit beneficiary to serve as trustee at any time after attaining age  or to name an independent trustee of the beneficiary’s choice.
For more information about inheritance protection trusts, check out this article.
The new tax law increases the estate tax exemption to $11,200,000 for 2018. Portability option and Credit Shelter trusts can protect up to $22,400,000 for married couples. This eliminates the estate tax as a concern for almost everyone (at least for now). The estate tax exemption will be inflation-adjusted for 8 years, then is scheduled to revert back to 2017 levels (adjusted for inflation) in 2026.
The major issues in estate planning will continue to be incapacity planning, mental health and end-of-life issues, inheritance protection, and determining the best way to leave tax-deferred retirement accounts to heirs and beneficiaries.
I'm currently working on the formatting for a new book, tentatively named Arizona Successor Trustee Answer Book. Hopefully to be released privately in January 2018. I think it's going to be an excellent resource.
New ownership of my office building complex just re-painted the exterior of my building from orange to white. I will update the office photos on this website ASAP.
My general advice is to sign new financial powers of attorney about every 5 to 10 years. Many financial institutions commonly reject older power of attorney documents as a matter of internal policy.
My general advice is to sign new health care powers of attorney at least every 10 years. The health care directive forms in Arizona regularly adapt to law changes, so regular updates are appropriate.
If a client begins to show signs of diminished mental capacity, then annual updates to the powers of attorney are appropriate.
Although many states permit self-settled asset protection trusts, Arizona law does not. But you can still establish an Arizona irrevocable trust with asset protection features:
You may contribute assets to an irrevocable trust for benefit of your children. The trust assets will be protected under Arizona law from the creditors of you and your children. Unless you need to exclude the assets from your taxable estate for estate tax purposes, you may serve as trustee and also retain a power to redirect the assets to different beneficiaries upon your death. This is called a testamentary limited power of appointment. The trust assets will be included in your taxable estate, but they will get a full step-up in income tax basis upon your death.
If you are married, you may include your spouse as a lifetime beneficiary of an individual irrevocable trust as long as contributions are separate property. This would permit your spouse to have continued access to the trust assets during your lifetime.
You can also give an independent trust protector the power to move the trust to a state that permits self-settled asset protection trusts, which would permit the trust protector to add you as a beneficiary.
Thomas J. Bouman