When a trust is established as a revocable trust, Arizona law generally provides that the settlor has the right to modify or terminate the trust so long as it is permitted under the trust instrument or by law. If the trust was created by a written instrument and is amendable or revocable, then the trust may only be amended or revoked by a written instrument that the settlor executes.
It gets a bit more complicated where the revocable trust is established by more than one settlor, which is common for married couples, because the laws of community and separate property must be considered. To the extent the trust consists of community property, a settlor may revoke the trust with regard to his or her share of the community property, but the joint action of both settlors is necessary to amend the trust. As to the extent the trust consists of separate property of a spouse, such settlor may revoke or amend the trust with regard to that settlor’s separate property contributed to the trust. Modification or termination is more difficult when a trust is established as an irrevocable trust but, under some circumstances, the Arizona Trust Code provides for the modification or termination of an otherwise irrevocable trust. In addition, a trust protector may be granted the power to modify or terminate an irrevocable trust by the settlor, and a trustee may modify an irrevocable trust by exercising his or her power to decant the trust property.
Nonjudicial Settlement Agreement
Interested persons are permitted to enter into a binding nonjudicial settlement agreement with respect to any matter involving the trust. The law does not require all interested persons to join in the agreement, but it would not be binding on parties that did not join in the agreement. The following matters may be resolved by nonjudicial settlement agreement: interpretation or construction of the terms of the trust; approval of a trustee’s report or accounting; directions to a trustee to either refrain from performing a particular act or the grant to a trustee any necessary or desirable power; resignation or appointment of a trustee and the determination of a trustee’s compensation; transfer of a trust’s principal place of administration; and liability of a trustee for an action relating to the trust.
The agreement will be valid to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court, and where modification or termination of the trust is not otherwise provided for in the trust instrument.