The Allocation Hierarchy
When a trustee receives money or pays an expense, the question is: does this come from income or principal? This statute sets the order of priority under the uniform principal and income act.
The trust document comes first. If the trust says how to split something, the trustee follows those instructions.
Shall administer a trust or estate in accordance with the terms of the trust or the will, even if there is a different provision in this article.
A.R.S. § 14-7402(A)(1)If the trust gives the fiduciary discretion over how to split principal and income, that discretion controls. The result may differ from what this article would require or permit.
Only when the trust is silent does the fiduciary fall back on the default rules. If neither the trust nor this article addresses a receipt or expense, it goes to principal.
The Duty of Impartiality
No matter which method applies, the fiduciary must be fair and reasonable. This means balancing the interests of income beneficiaries against remainder beneficiaries.
Income beneficiaries want current distributions. Remainder beneficiaries want the principal preserved and growing.
A fiduciary shall administer a trust or estate impartially, based on what is fair and reasonable to all of the beneficiaries, except to the extent that the terms of the trust or the will clearly manifest an intention that the fiduciary shall or may favor one or more of the beneficiaries.
A.R.S. § 14-7402(B)There is one exception. If the trust clearly states that the fiduciary may favor one beneficiary over another, that instruction controls.
For example, some trusts prioritize a surviving spouse's income needs over preserving principal for children. When the trust is clear about that intent, the fiduciary follows it.
Families should understand that these rules protect every beneficiary. A trustee who ignores the split between principal and income risks personal liability.