Following the Beneficiary's Lead
A custodial trust works differently depending on whether the beneficiary can manage their own affairs. When the beneficiary is not incapacitated, the custodial trustee must follow the beneficiary's directions for managing, investing, and controlling the trust property. The beneficiary stays in charge.
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 custodial trustee defaults to the prudent person standard: manage the property the way a careful person would handle someone else's assets. If the trustee was chosen because of special expertise, they are held to that higher standard.
Keeping Trust Property Identifiable
Custodial trust property must remain clearly separate from the trustee's own assets. For recorded property like real estate, the trustee must file an appropriate instrument. For registered accounts, the property must be held under a specific designation: "as custodial trustee for [beneficiary name] under the Uniform Custodial Trust Act."
The trustee must also keep detailed records of every transaction and make them available to the beneficiary or their legal representative at reasonable times. This includes all information needed for tax return preparation.
One important limit: a durable power of attorney held by someone other than the custodial trustee cannot be used to terminate or redirect a custodial trust for an incapacitated beneficiary. The custodial trust structure remains intact even if an agent under a power of attorney would prefer a different arrangement.
