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This has been an exciting year, not only for the law firm, but also for estate planning in general. The purpose of this letter is to outline some of the changes that have taken place over the last several months and discuss some changes that will certainly come by the end of the year.

Arizona finally adopted the new Arizona Trust Code which went into effect January 1st of 2009.  This new Code now impacts all Trusts created in Arizona and governed under Arizona Law. I am sure that most of you have heard about these changes in the law as this has been a popular subject in the last few months.   There are many features to this new law that are quite favorable to estate planning.  There are also a couple of provisions in the new law that requires all trusts created in Arizona to consider an amendment.  The two most common provisions of the new code that require an amendment to your Trust are as follows:

  1. One of the new provisions of the Arizona Trust Code requires trustees of an irrevocable trust to provide notice to all beneficiaries of certain aspects of the administration of the trust, their right to request a copy of part of the trust document, and their right to request an annual accounting of all trust assets. All beneficiaries are defined to include not only the current income beneficiaries, but also the remainder beneficiaries of a trust (usually the children and grandchildren). Most of you have an “AB Trust”. Remember, even if you have created a revocable trust, a portion of that trust becomes irrevocable upon the surviving spouse’s death. This means that on the death of the first spouse, the surviving spouse would have to give a full accounting of the B Trust (Decedent’s Trust) to the beneficiaries.  Many clients do not feel comfortable providing an annual report of their private information and activities relating to trust assets to their beneficiaries. Furthermore, this could increase the cost of administering a trust and added accounting fees.  However, under the provisions of the new law, a client can choose to “draft around” this requirement by amending their trust to provide that the Trustee does not have a duty to provide annual accountings to the remainder beneficiaries (children).
  2. Another new provision of the Arizona Trust Code applies to any trustee who “invests and manages trust assets” (most trustees will meet that requirement, as that is a basic duty and responsibility of trustees).  The new Trust Code requires that these trustees comply with the “Prudent Investor Rule” while dealing with trust assets.  The Prudent Investor Rule requires the trustee to adhere to a specific standard of care in determining the appropriate trust portfolio strategy, the risk and return objectives, and the correct amount of diversification required for the trust assets.  This is the same standard that large corporations and banks are held to when acting as a Corporate Trustee.  This rule could seem tedious and burdensome for a family member who is serving as a trustee and who has managed his own trust assets with great success over a long period of time by sticking to the types of investments with which he or she is familiar.  This provision can also be “drafted around” by amending your trust.    A change to the trust document could allow the trustee to continue with their successful management of the assets in a way which is consistent with the trustee’s personal investment strategies.

In conclusion, we strongly recommend that all of our estate planning clients, who are married, amend their Revocable Living Trust to include the two changes discussed above. If you would like to meet with us, to discuss these issues in greater detail prior to making the changes, please contact our office. In addition, if you haven’t met with one of our attorneys for at least the past 3 or 4 years, we strongly recommend a meeting to review other provisions in your trust that may need to be updated.  We particularly recommend that you renew and update your Powers of Attorneys at least every 5 years

Last, we do anticipate a change in the federal estate tax laws towards the end of the year.  However, we do not anticipate that these changes will be dramatically different then what the laws are today.  Currently, the federal estate tax exemption is $3,500,000 per person.  The estate tax system is scheduled to be repealed on January 1st of 2010.  However, before you get too excited, there is a virtual certainty that the repeal of the estate tax will not happen.  There are at least 3 bills, currently pending, that would eliminate the repeal of the estate tax.  As currently drafted, each of these bills currently includes an exemption of at least $3,500,000.  So, the bad news is that the estate tax system will not be repealed; however, the good news is that the exemption will probably remain at $3,500,000.  As tax attorneys, our firm is tracking these proposed amendments very closely.  We will give you a detailed letter outlining these changes when they are finalized later this year.

In conclusion, the outlook for estate planning is very bright.  Favorable laws were passed with respect to the Arizona Trust Code.  However, some of the provisions of this law require action on your part.  You should amend your Trust to incorporate the two provisions that I discussed above.  The estate tax system will remain in tact, at least for the foreseeable future.  However, the exemption remains high which takes approximately 95% of Americans out of the system.  As always, we appreciate your business and friendship. If there is anything our law firm can assist you with, or if you have any questions regarding the changes mentioned above, please do not hesitate to contact our office.