Income vs. Principal: The Core Distinction
When a trust holds assets, some of those assets generate current returns. These include dividends, interest, or rent. This statute calls those returns "income."
The underlying assets themselves count as "principal." A trustee who manages trust assets must understand this distinction. It matters because income and remainder beneficiaries have competing interests.
"Income" means money or property that a fiduciary receives as current return from a principal asset and includes a portion of receipts from a sale, exchange or liquidation of a principal asset, to the extent provided in sections 14-7410 through 14-7424.
A.R.S. § 14-7401(4)An income beneficiary receives net income from the trust during its term. A remainder beneficiary receives the principal when the income interest ends.
In many family trusts, a surviving spouse receives income for life. The children receive the principal after the spouse passes.
Fiduciary, Trustee, and the Accounting Period
The statute defines "fiduciary" broadly. It includes personal representatives, trustees, executors, and administrators.
"Fiduciary" means a personal representative or a trustee and includes an executor, an administrator, a successor personal representative, a special administrator and a person performing substantially the same function.
A.R.S. § 14-7401(3)Fiduciary duties under this article apply during both trust management and estate settlement. Trust documents may add specific duties beyond these defaults.
The accounting period defaults to a calendar year. It can also be a different twelve-month period chosen by the fiduciary. This means it includes partial periods at the start or end of an income interest.
Families who own real estate, investment accounts, or business interests in a trust should understand these terms. The way a trustee classifies each receipt directly affects how much each beneficiary receives.