Core duties · 6 min read
The prudent investor rule
A trustee who invests and manages trust assets owes the beneficiaries a duty to comply with the prudent investor rule of Article 9, a default rule the trust's provisions may expand, restrict or eliminate (A.R.S. § 14-10901). The trustee invests and manages as a prudent investor would, considering the trust's purposes, terms, distribution requirements and other circumstances, with reasonable care, skill and caution; decisions are evaluated in the context of the portfolio as a whole and an overall strategy with risk and return objectives suited to the trust (§ 14-10902). The trustee diversifies unless special circumstances make it better not to (§ 14-10903), and reviews the assets within a reasonable time after accepting (§ 14-10904).
Prudent administration and impartiality
A trustee administers the trust as a prudent person would, considering the purposes, terms, distributional requirements and other circumstances of the trust, with reasonable care, skill and caution (A.R.S. § 14-10804); incurs only costs that are reasonable in relation to the trust property, the purposes and the trustee's skills (§ 14-10805); and uses any special skills the trustee has or was named for (§ 14-10806). Where a trust has two or more beneficiaries, the trustee acts impartially in investing, managing and distributing the property, giving due regard to their respective interests (§ 14-10803).
Loyalty and its presumptions
A trustee administers the trust solely in the interests of the beneficiaries. A sale, encumbrance or other transaction involving trust property that the trustee enters for the trustee's own account, or that is affected by a conflict between the trustee's fiduciary and personal interests, is voidable by an affected beneficiary unless the terms authorized it, the court approved it, the beneficiary consented or released, the time to sue has passed, or the trustee's contract or claim predates the trusteeship (A.R.S. § 14-10802(B)). A transaction with the trustee's spouse, descendants, siblings or parents, the trustee's agent or attorney, or an enterprise in which the trustee has an interest that might affect the trustee's judgment is presumed to be affected by a conflict (§ 14-10802(C)); reasonable compensation, a deposit in the trustee's own regulated institution and an advance for the trust's protection are allowed if fair (§ 14-10802(H)).
Discretion and its limits
However broad the discretion the terms grant, the trustee exercises a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries (A.R.S. § 14-10814(A)). Unless the terms say otherwise, a trustee-beneficiary other than the settlor may distribute to the trustee's own benefit only under an ascertainable standard of health, education, support or maintenance; a trustee may not use a discretionary power to satisfy the trustee's own support obligation; and a settlor-trustee of a trust other than a special needs trust may distribute to a beneficiary only under such a standard (§ 14-10814(B)).
The statutes, verbatim
Duty of loyalty
A.R.S. § 14-10802 ↗Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.
Prudent administration
A.R.S. § 14-10804 ↗Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.
Discretionary powers; tax savings
A.R.S. § 14-10814 ↗Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.
Standard of care; portfolio strategy; risk and return objectives
A.R.S. § 14-10902 ↗Clear, simple explanation; the verbatim statute text is not yet attested in our library. See the official statute via the link above.
Common questions
What is the prudent investor rule in Arizona?
A trustee invests and manages trust assets as a prudent investor would, considering the trust's purposes, terms, distribution requirements and other circumstances, in the context of the whole portfolio and an overall strategy (A.R.S. § 14-10902); the rule is a default the trust's terms may alter (§ 14-10901).
Can an Arizona trustee buy trust property?
A transaction for the trustee's own account is voidable by an affected beneficiary unless an exception applies — the terms' authority, the court's approval, the beneficiary's consent or release, or the passing of the time to sue (A.R.S. § 14-10802(B)).
Does an Arizona trustee have to diversify?
Yes, unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying (A.R.S. § 14-10903).
Related reading
The Learning Center is general information about Arizona law — not legal advice, and not a substitute for advice from a licensed Arizona attorney about your specific facts. TrusteeClear is software, not a law firm.
Frequently asked questions
- What is the prudent investor rule in Arizona?
- A trustee invests and manages trust assets as a prudent investor would, considering the trust's purposes, terms, distribution requirements and other circumstances, in the context of the whole portfolio and an overall strategy (A.R.S. § 14-10902); the rule is a default the trust's terms may alter (§ 14-10901).
- Can an Arizona trustee buy trust property?
- A transaction for the trustee's own account is voidable by an affected beneficiary unless an exception applies — the terms' authority, the court's approval, the beneficiary's consent or release, or the passing of the time to sue (A.R.S. § 14-10802(B)).
- Does an Arizona trustee have to diversify?
- Yes, unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying (A.R.S. § 14-10903).
General information about Arizona law, not legal advice.