Creating a Trust

There are three ways to create a trust in the State of Arizona.  They are:  (1) property is transferred by the settlor during his or her lifetime, by will or other disposition taking effect on the settlor’s death, to a person serving in the capacity as trustee; (2) the declaration of an owner of property that such property is held as trustee; and (3) the exercise of a power of appointment that is in favor of a trustee.  Pursuant to statute, there must be a settlor, trust property, and a trustee for a trust to exist in Arizona.  However, Arizona courts have ruled that a valid trust will not be allowed to fail for lack of a trustee.  There is a difference between a settlor’s failure to designate an identifiable trustee and a settlor failing to intend there be a trustee at all.  For example, a settlor could manifest the intent to transfer title to a trustee and name a deceased trustee.  Arizona law would allow interested persons to name a trustee by a nonjudicial settlement agreement or a trustee could be appointed by the courts.  But there must be intent on the part of the settlor to create a trust.  Every transfer to a third party does not necessarily create a trust.

Requirements to Create a Valid Trust 

The Arizona Trust Code provides the requirements for the creation of a valid trust, and these requirements cannot be overridden by the terms of the trust.  They are:  (1) capacity of the settlor to create the trust; (2) intent by the settlor to create the trust; (3) the trust must either have a definite beneficiary or (a) be a charitable trust, (b) a trust for the care of an animal, or (c) a trust for a noncharitable purpose; (4) the trustee must have duties to perform; and (5) the trust must not have a sole trustee and a sole beneficiary that is the same person.  In addition, the purpose of any given trust must be lawful, not contrary to public policy, and must be able to achieve.

Capacity and Intent to Create a Trust 

The mental capacity required to make a revocable or testamentary trust is the same as the mental capacity to create a will, but the Arizona Trust Code does not require the creation of a trust to meet the formalities of will creation.  The settlor’s intent to create a trust can be found in the trust instrument itself or from other evidence admissible in court.

The Requirement of a Definite Beneficiary 

A definite beneficiary is a beneficiary that can be ascertained either now or in the future, subject to the rule against perpetuities.  A power held by a trustee or another person to select a specific beneficiary from an indefinite class is valid, so long as such power is exercised within a reasonable time.

Trustee Duties 

There can be no trustee without trustee duties.  While the Arizona Trust Code allows for modification of the duties of a trustee, the trust instrument may not eliminate the trustee’s duties completely, and a trustee always has a duty to act in good faith in accordance with the purpose of the trust.

Sole Trustee and Beneficiary 

The requirement that a trustee cannot also be the sole beneficiary alludes to the merger doctrine.  The doctrine holds that when both legal and beneficial title to trust property are held by the same party the trust is terminated, or not created at all.

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