PHOENIX – Four years after a storm of criticism prompted Arizona legislators to repeal an earlier version, a new version of a state trust code law is headed to Gov. Janet Napolitano.
Trusts are legal mechanisms that families and others use to hold money and property or convey it to designated beneficiaries such as younger relatives and charities.
The House completed legislative action on the current bill (HB2806) Wednesday, approving it 60-0. A previous House vote also was unanimous, and a Senate vote was 28-0.
The bill provides new flexibility to creators of trusts and new protections for the trusts themselves.
But the biggest value may be the new legislation fleshes out current state law that is skimpy, creating a clear path for judges to follow when there are disputes involving trustees and beneficiaries, attorneys said.
“With this new law it will be easier to resolve those issues,” said James W. Ryan, a trust and estate lawyer who worked on the legislation.
The 2003 law was first suspended and then repealed in 2004 because of complaints, mostly about provisions that made it apply retroactively and required existing trusts to make new disclosures to beneficiaries and the state.
The legislator who sponsored both the repealed 2003 law and the new bill said he’s made sure that the replacement version doesn’t require changes to trusts already in effect when the bill takes effect on Jan. 1, 2009, assuming Napolitano signs it into law.
“They’re all basically grandfathered,” said Rep. Tom Boone, R-Peoria.
In fact, the new legislation has many provisions that trustees might want to use for existing trustees, Ryan said. “But they don’t have to.”
Boone, now the House majority leader, was a freshman legislator in 2003 when he sponsored the bill — drawn from model legislation being adopted by states across the country — that sailed through the Legislature without controversy that spring.
Only during the following summer did a deluge of complaints start pouring in as word got out to retirement communities in his district that people with trusts had to change them and make new notifications.
“I had individuals coming up to me saying how could I possibly have done this to their trusts,” Boone recalled.
Attorney Les Raatz was one of those people sounding the alarm.
“A lot of these trusts are set up by parents for children and they don’t want the children’s work ethics tainted or polluted by knowing they’ve got these trust funds set up for them,” said Raatz, a Phoenix tax specialist.
The new bill was supported by representatives of the Arizona Bankers Association and the State Bar of Arizona, a professional organization representing attorneys.