Where the Trust Property Goes When the Trust Ends
A custodial trust does not last forever. It is designed to hold trust property for a beneficiary's benefit. When the purpose is fulfilled or the beneficiary no longer needs it, the trust terminates. This statute sets a clear chain of priority for distributing whatever is left.
On the termination of a custodial trust, the custodial trustee shall transfer the unexpended custodial trust property: 1. To the beneficiary, if not incapacitated or deceased. 2. To the conservator or other recipient designated by the court for an incapacitated beneficiary.
A.R.S. § 14-9117(A)(1)-(2)If the beneficiary is alive and has capacity, the trust property goes directly to them. If the beneficiary is incapacitated, the property goes to the conservator or other court-appointed recipient.
If the beneficiary has died, the law follows a four-step priority. First, any written direction the beneficiary signed while not incapacitated. Second, a surviving co-beneficiary if survivorship was built into the trust. Third, whatever the original trust instrument says. Finally, the beneficiary's estate.
These rules also apply to UTMA accounts and arrangements created under the Uniform Transfers to Minors Act. The distribution on termination follows the same priority regardless of how the custodial trust was funded.
What Happens When the Next Recipient Cannot Take
Sometimes the person entitled to receive the trust property after termination is also incapacitated. In that case, the custodial trust does not end. It continues to hold and manage the property for that person's benefit until the incapacity is removed.
If, when the custodial trust would otherwise terminate, the distributee is incapacitated, the custodial trust continues for the use and benefit of the distributee as beneficiary until the incapacity is removed or the custodial trust is otherwise terminated.
A.R.S. § 14-9117(B)The trustee also keeps authority to pay obligations that were incurred before termination, even after the beneficiary has died. This ensures that bills, taxes, and other debts tied to the trust property are settled properly.