Splitting Trustee Compensation and Shared Costs
Running trust funds costs money. The trustee needs compensation. Accountants prepare tax returns. Sometimes legal proceedings are necessary. Arizona law divides many of these costs between income and principal. 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 investment advisory fees. It also covers accountings, recurring tax preparation, and judicial proceedings that involve both income and remainder interests. This prevents either side from bearing too large a share of costs.
Ordinary Expenses and Insurance
Beyond shared costs, income bears all ordinary expenses of day-to-day administration. This includes interest on trust debts, routine repairs, and regularly recurring taxes assessed against principal. Any proceeding that mainly concerns the income interest is also paid from income.
Insurance premiums follow a logical allocation. If the policy protects against loss of a principal asset or loss of monthly income from that asset, the premiums come from income. The income beneficiary has the most immediate stake in keeping assets protected.
These rules apply as defaults. The trust document can override them. When the trust is silent on expense allocation, this statute fills the gap with a balanced framework.
For an estate planning trust, an income only trust, or a miller trust, these rules determine how much monthly income reaches the beneficiary. ALTCS applicants and families paying for nursing care or medical expenses should understand which costs reduce the income available for distribution.
Knowing where expenses come from helps families plan. If a trust pays for nursing care and the cost comes from income, the beneficiary receives less each month. Reviewing these rules with your trustee helps set realistic expectations about distributions.