Good Faith Protection for Third Parties
Custodial trusts involve a trustee managing property for a beneficiary, and that trustee regularly needs to interact with banks, financial institutions, title companies, and other third parties. This statute removes a significant barrier to those transactions by shielding third parties from liability when they deal with a custodial trustee in good faith.
A third person in good faith and without a court order may act on the instructions of or otherwise deal with a person who is purporting to make a transfer as or to act in the capacity of a custodial trustee.
A.R.S. § 14-9111In practical terms, this means a bank processing a transfer, a broker executing a trade, or a title company recording a deed does not need to independently confirm that the custodial trustee was validly appointed. As long as the third party has no actual knowledge that something is wrong, the statute provides a safe harbor.
What Third Parties Are Not Required to Verify
The protection covers four specific areas. A third party does not need to verify whether the trustee's designation is valid, whether the trustee has authority to take a particular action, whether the instruments the trustee presents are properly executed, or whether the trustee is applying the property correctly. This breadth of protection encourages smooth transactions and prevents custodial trust administration from being slowed by excessive due diligence requirements at every step.
For families using custodial trusts to manage property for a loved one, this statute ensures that day-to-day financial transactions can proceed without unnecessary friction.
