Good Faith Defense Costs Come from the Trust
Serving as a trustee can lead to trust litigation. Beneficiaries may challenge decisions. Third parties may bring claims. When that happens, a trustee who carries out their fiduciary duties in good faith should not have to pay attorney's fees out of pocket.
A trustee or a person who is nominated as a trustee is entitled to reimbursement from the trust for that person's reasonable fees, expenses and disbursement, including attorney fees and costs, that arise out of and that relate to the good faith defense or prosecution of a judicial or alternative dispute resolution proceeding involving the administration of the trust, regardless of whether the defense or prosecution is successful.
A.R.S. § 14-11004(A)Two details stand out here. First, this protection applies whether the trustee wins or loses. Good faith is the standard, not the outcome. Second, the statute also covers someone nominated as a trustee but not yet formally serving. That person can defend their nomination without personal financial risk.
Under the American rule, each side typically pays their own legal fees. This statute creates an exception for trust proceedings. The trust estate pays attorney's fees when the trustee acted in good faith.
Courts Can Shift Costs Between Parties
Beyond standard reimbursement, a court has broad discretion to order that one party pay attorney's fees for another party. This flexibility addresses situations where a frivolous claim drags a trustee into court. It also covers cases where a trustee's misconduct forces beneficiaries to hire counsel.
For families navigating trust disputes, this statute provides important context. A trustee acting in good faith has financial protection from the trust estate. A trustee acting in bad faith may end up covering everyone's legal fees.