Splitting Trustee Compensation and Shared Costs
Running a trust costs money. The trustee needs to be compensated, accountants need to prepare tax returns, and sometimes legal proceedings are necessary. Arizona law divides many of these costs between income and principal, reflecting the fact that both current beneficiaries and remainder beneficiaries benefit from proper trust administration.
One-half of the regular compensation of the trustee and of any person providing investment advisory or custodial services to the trustee, whether based on a percentage of income or principal, a fixed amount or an hourly charge.
A.R.S. § 14-7425(1)The fifty-fifty split applies to regular trustee compensation and to investment advisory or custodial fees. It also covers accountings, recurring tax preparation, and judicial proceedings that involve both income and remainder interests. This even-handed approach prevents either side from bearing a disproportionate share of costs that serve the entire trust.
Ordinary Expenses and Insurance
Beyond the shared costs, income bears all ordinary expenses of day-to-day trust administration. This includes interest on trust debts, routine repairs to trust property, regularly recurring taxes assessed against principal, and any proceeding that primarily concerns the income interest.
Insurance premiums also follow a logical allocation. If the policy protects against loss of a principal asset or loss of income from that asset, the premiums come from income. The idea is that the income beneficiary has the most immediate stake in keeping income-producing assets protected and operational.
These allocation rules apply as defaults. The trust document itself can override them with different instructions. But when the trust is silent on expense allocation, this statute fills the gap with a balanced framework that trustees can follow without guessing.
