What Makes an Express Unitrust Different
A.R.S. 14-11014 covers converting an existing income trust into a unitrust. This statute is different. It addresses trusts built as unitrusts from the start.
The trust document itself requires yearly payouts equal to a fixed percentage of the trust's net fair market value. There is no conversion step. The income beneficiary gets a steady payout tied to the trust's total value.
Distribution of a fixed percentage unitrust amount is considered a distribution of all of the income of the total return unitrust and is not a fundamental departure from applicable state law, regardless of whether the total return unitrust is created and governed pursuant to section 14-11014 or by the terms of the governing instrument.
A.R.S. § 14-11015(B)This matters for tax purposes and for trustees managing payouts. The statute confirms that a fixed percentage payout counts as paying all trust income. As a result, the trust stays in line with rules that require income to go to beneficiaries.
The Percentage Range and What Happens Outside It
The same three-to-five percent range from the conversion statute applies here. A payout in that range "reasonably apportions the total return" of the trust.
If the trust document sets a payout above five percent, the law treats the extra amount as principal. In other words, only the first five percent counts as income.
An express total return unitrust that provides for a fixed percentage payout in excess of five per cent per year is considered to have paid out all of the income of the total return unitrust and to have paid out principal of the trust to the extent that the fixed percentage payout exceeds five per cent per year.
A.R.S. § 14-11015(F)The trust document can also let the trustee treat capital gains as part of the payout. It can set the order in which income classes are used.
Without specific direction, payouts follow a default order. Net accounting income comes first, then ordinary income, then short-term capital gains, then long-term capital gains, and finally principal.
Why This Structure Matters
An express unitrust skips the steps needed for a conversion. The settlor builds the payout method right into the trust document.
This clarity helps every income beneficiary who will get payouts during the trust's life. It also cuts the risk of disputes because the payout method is locked in from day one.