During 2008 Arizona Revised Statute § 14-10416 was enacted. In its entirety the statute provides:
“To achieve the settlor's tax objectives, the court may modify the terms of a trust in a manner that is not contrary to the settlor's probable intention. The court may provide that the modification has retroactive effect.”
Arizona Revised Statute § 14-10410(B) allows a trustee or a beneficiary to bring a proceeding in court to approve or disapprove a proposed modification or termination to a Trust. The statute allows a court to wield broad discretion in these matters.
A legitimate argument could be made that courts should not have this much discretion over an individual’s personal financial affairs. Courts might take care to incorporate the settlor’s intent, rather than one “that is not contrary to” the settlor’s probable intent, even if the settlor’s intent might seem eccentric.
A contested proceeding should focus upon the intent of the settlor, whether or not the settlor was represented by competent counsel and other pertinent evidence.
If all of the beneficiaries consent to modification or termination, a petition of this nature should be promptly approved by the court. But, rather than summarily approving these petitions, courts might better serve the public by proactively scrutinizing who might actually be affected, their ages if they are alive, their current means and current vulnerabilities, their ability to truly understand what rights might be or are affected, and the values of the potential revisions to each affected beneficiary. The consent of the living beneficiaries should be limited in application to their specific, personal rights.
If not all beneficiaries consent, as long as the interests of the dissenting or silent beneficiaries are adequately protected, the court should promptly approve the petition so as not to impede the Trust administration. Whether or not beneficiaries have been “adequately protected” will undoubtedly be vigorously contested by many.
This statute does not appear to have been tested yet in any published case.