Arizona Business Succession Planning:Understanding Fiduciary Duties Before ItIs Too Late
Arizona business owners spend years—often decades—building companies that support their families, employees, and communities. Yet many overlook a critical risk: the fiduciary responsibility placed on the people who will manage the business during incapacity or after death.
If you own a closely held company in Arizona, your estate plan and business succession plan likely name one or more fiduciaries. These may include:
An agent under a financial power of attorney
A trustee of your revocable trust
A personal representative (executor) of your estate
A managing member or corporate officer
Each of these roles carries legal duties under Arizona law. When business ownership is involved, the risk multiplies.
Without proper planning, well-meaning family members can face personal liability, court disputes, and significant legal fees.
This is not a rare problem. It is one of the most common sources of litigation in family-owned businesses.
What Is a Fiduciary Under Arizona Law?
A fiduciary is someone legally required to act in another person’s best interests. In Arizona, fiduciary duties arise under several statutory frameworks, including trust law, probate law, agency law, and business entity statutes. For example:
- Trustees owe duties under the Arizona Trust Code (A.R.S. Title 14). ¹
- Personal representatives owe duties under Arizona probate statutes.²
- Agents under a power of attorney have statutory obligations to act loyally and maintain records.³
- LLC managers are governed by the Arizona Limited Liability Company Act.⁴
These duties generally include:
- Acting in good faith
- Avoiding conflicts of interest
- Keeping accurate records
- Following governing documents
- Keeping assets separate
Importantly, good intentions are not a defense. Courts evaluate conduct based on compliance with legal standards—not family dynamics.
Why Fiduciary Risk Is Higher for Arizona Business Owners
When a business is involved, fiduciary exposure increases because:
- The business is often the largest asset in the estate.
- Income from the business may support multiple beneficiaries.
- Records are frequently informal in closely held companies.
- Family members may have unequal roles in the business.
In Arizona family businesses, one child often runs the company while multiple children inherit ownership interests. This structure creates inherent tension.
The acting manager must balance:
- Duty to the business
- Duty to co-owners
- Duty to the estate or trust
- Family relationships
Without clear documentation, disputes are likely.
Common Fiduciary Mistakes in Arizona Business Succession
1. Blurring Business and Personal Finances
Many small and mid-sized Arizona businesses operate informally. Owners may transfer funds between personal and business accounts or take undocumented draws.
After incapacity or death, that informality becomes evidence.
Agents under a power of attorney in Arizona are required to maintain records of all receipts, disbursements, and transactions conducted on behalf of the principal. ³ Trustees and personal representatives have similar accounting obligations.⁵
Incomplete records are one of the fastest ways to trigger a breach of fiduciary duty claim.
2. Outdated LLC Operating Agreements
If your company is an LLC, your operating agreement must coordinate with your estate plan. Under the Arizona Limited Liability Company Act, default rules apply if your operating agreement is silent.⁴ Many Arizona business owners are surprised to learn that:
Transfer restrictions may not align with their trust
Voting rights may shift unexpectedly
Fiduciary standards may not be clearly defined
Successor managers may not be properly authorized
If your trust leaves your LLC interest to multiple beneficiaries but your operating agreement was never updated, conflict is almost guaranteed.
3. No Clear Business Valuation Method
When a business owner dies without a valuation method in place, the personal representative must determine fair market value as part of estate administration.²
Beneficiaries may challenge that valuation if they believe:
The business was undervalued
The acting family member manipulated compensation
Distributions were unequal
Arizona courts have authority to review fiduciary conduct and impose remedies for breach, including monetary surcharge.⁶ Business valuation disputes are expensive and time-consuming, and they can stall probate while harming operations.
4. Equal Inheritance, Unequal Involvement
One of the most common Arizona business succession mistakes is leaving ownership equally to children when only one child works in the company.
This creates competing interests:
The working child may want to reinvest profits.
Non-working beneficiaries may want distributions.
The trustee must balance both.
A trustee must administer a trust in good faith and in accordance with its terms and purposes.¹ Without clear guidance in the trust and operating agreement, the fiduciary may be exposed to claims of breach of duty.
Personal Liability Is Real
Arizona courts have authority to:
Remove trustees or personal representatives⁷
Surcharge fiduciaries for financial losses⁶
Order repayment of improperly handled funds
Award attorney’s fees in certain disputes
Even if a fiduciary ultimately prevails, the legal fees and stress can be significant.
For business owners, the risk is not only family conflict. It is operational disruption. Litigation
can:
Freeze distributions
Interfere with management authority
Affect lender relationships
Reduce business value
Preventive planning costs far less than business litigation.
Should Arizona Business Owners Consider Professional Fiduciaries?
Arizona law permits reasonable compensation for trustees and personal representatives.⁸
Many business owners hesitate to name professional fiduciaries due to cost. However, in
situations involving:
High-value companies
Multiple heirs
Blended families
Anticipated conflict
Complex real estate holdings
Neutral third-party oversight can preserve value and reduce litigation risk.
A hybrid approach often works well:
A family member serves as co-trustee or co-manager
A professional provides structure, accounting, and compliance oversight
The goal is not to replace family involvement but to protect it.
Five Essential Questions for Arizona Business Succession Planning
If you own a business in Arizona, ask yourself:
If I became incapacitated tomorrow, who has legal authority to operate my company?
Does my power of attorney specifically authorize business management?³
Is my LLC operating agreement coordinated with my trust?⁴
Are my business records organized well enough to withstand statutory scrutiny?⁵
Have I clearly addressed compensation and distribution expectations?
If these questions are difficult to answer, your fiduciaries may be exposed.
Practical Steps to Reduce Fiduciary Risk
Effective Arizona business succession planning includes:
Updating LLC operating agreements
Coordinating trust and business documents
Creating written management succession plans
Establishing valuation formulas
Clarifying compensation structures
Organizing financial records
Holding fiduciary orientation meetings.
Business succession is not only about transferring ownership. It is about transferring authority safely.
Protecting Your Business, Your Family, and Your Fiduciaries
Fiduciary disputes in Arizona business succession cases are rarely about bad intent. They are
about process.
The people you name as agent, trustee, or personal representative may face:
Legal scrutiny
Personal liability
Family conflict
Significant time burdens
Proper planning reduces those risks.
If you are an Arizona business owner and are unsure whether your estate plan, LLC operating agreement, and succession strategy are properly aligned, now is the time to review them.
A short conversation can help identify whether your fiduciaries are protected—or unintentionally exposed to personal liability.
We invite you to schedule a complimentary 15-minute phone call to discuss:
Whether your business documents coordinate with your trust
Who has authority during incapacity
Whether your fiduciaries face unnecessary risk
What proactive steps may reduce future conflict
1. A.R.S. § 14-10801 (Trustee duty to administer trust in good faith and according to its terms).2. A.R.S. § 14-3703 (General duties of personal representative).3. A.R.S. § 14-5506 (Duties and responsibilities of agent under power of attorney).4. A.R.S. Title 29, Chapter 7, including § 29-3409 (Standards of conduct for members and managers under the Arizona Limited Liability Company Act).5. A.R.S. § 14-10813 (Trustee duty to inform and report); A.R.S. § 14-3712 (Personal representative duty to account).6. A.R.S. § 14-11001 (Remedies for breach of trust).7. A.R.S. § 14-10706 (Removal of trustee); A.R.S. § 14-3611 (Removal of personal representative).8. A.R.S. § 14-10708 (Compensation of trustee); A.R.S. § 14-3719 (Compensation of personal representative).
