Following the Beneficiary's Lead
A custodial trust works differently based on whether the beneficiary can manage their own affairs. When the beneficiary is not incapacitated, the trustee must follow their directions.
The beneficiary stays in charge of decisions about managing, investing, and controlling trust property.
If the beneficiary is not incapacitated, a custodial trustee shall follow the directions of the beneficiary in the management, control, investment or retention of the custodial trust property.
A.R.S. § 14-9107(B)When the beneficiary has not given specific directions, the trustee defaults to the prudent person standard. This means managing the property as a careful person would handle someone else's assets.
If the trustee was chosen for special skills, they are held to that higher standard.
Keeping Trust Property Identifiable
Trust property must stay clearly separate from the trustee's own assets. For recorded property like real estate, the trustee must file a proper instrument.
For registered accounts, a specific label is required: "as custodial trustee for [beneficiary name] under the Uniform Custodial Trust Act."
The trustee must also keep detailed records of every transaction. Those records must be available to the beneficiary or their legal representative at reasonable times. This includes all information needed for tax return preparation.
One important limit applies. A durable power of attorney held by someone other than the trustee cannot end or redirect a custodial trust for an incapacitated beneficiary. The trust structure stays intact.