Probate Attorney in Phoenix, Arizona
Tell us about your cases involving the limits of protective trusts.
Tell us about your cases involving the limits of protective trusts.
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Arizona, again, has some unique rules and one of them is that a beneficiary can be their own trustee. In the common law of trusts if the beneficiary and the trustee are the same there’s a merger and there’s no trust and then, of course, the creditors have free rein to execute on those assets because the trustee is holding it for the benefit of themselves. In Arizona by statute that doesn’t hold true and what you have to be careful that’s more a drafting issue than it is a recognition issue once the creditor comes. I’ve been on both sides of those stories fighting to protect the assets in the trust and also litigating when the trustee has had too much authority or the beneficiary has too much authority so that the assets of the trust are treated as if they were owned by the beneficiary and thus available to the beneficiary’s creditors.
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Phoenix, AZ estate planning attorney Mark A. Bregman talks about cases he’s been a part of involving protective trusts. He explains that Arizona has certain unique rules, one of which allows a beneficiary to also serve as trustee. Under common law, if the beneficiary and trustee are the same person, a merger occurs and the trust ceases to exist, leaving the assets vulnerable to creditors because the trustee is effectively holding them for personal benefit. Arizona law, however, provides otherwise by statute.
He notes that this distinction is primarily a matter of careful drafting rather than an issue resolved once creditors pursue claims. Throughout his practice, he has been involved on both sides of such disputes—advocating to protect trust assets from creditor claims and, in other cases, litigating when a trustee or beneficiary exercised excessive authority. In those circumstances, the assets of the trust may be treated as if they were personally owned by the beneficiary and therefore subject to creditor claims.
