What Counts as a Liquidating Asset
Some trust assets are designed to run out. A patent generates royalties for a fixed term. A leasehold produces rent until the lease expires. A copyright earns income for a limited period. Arizona law calls these "liquidating assets" and provides a specific formula for handling the money they produce.
A trustee shall allocate to income ten per cent of the receipts from a liquidating asset and the balance to principal.
A.R.S. § 14-7419(A)The ten-percent-to-income rule reflects a balance between the income beneficiary's need for current distributions and the remainder beneficiary's interest in preserving capital. As the asset winds down, the bulk of each payment replenishes principal.
What the Statute Includes and Excludes
The definition of liquidating asset is specific. It includes leaseholds, patents, copyrights, royalty rights, and rights to receive payments over more than one year under arrangements that do not include interest on the unpaid balance.
"Liquidating asset" means an asset whose value will diminish or terminate because the asset is expected to produce receipts for a period of limited duration.
A.R.S. § 14-7419(B)(1)The statute carves out several categories that have their own allocation rules. Deferred compensation and annuity payments (section 14-7418), minerals and natural resources (section 14-7420), timber (section 14-7421), and assets for which the trustee has established a depreciation reserve (section 14-7427) are all handled separately. This prevents double-counting or conflicting rules when an asset could fit more than one category.
