USA – ARKANSAS Law and Practice Contributed by: Aaron Bundy and Danya Bundy, Bundy
Professional fiduciaries answer to a higher standard. Under Section 28-73-806 of the Arkansas Code Anno - tated, a trustee with special skills or expertise, or one named in reliance on a representation of special skills, must use them. An institution that markets fiduciary expertise will be measured against its marketing. 6.2 Fiduciary Liabilities A trust is not a corporation, so the question is less about piercing a veil than about the personal exposure of the trustee. Trustees answer personally for their own breaches, and beneficiaries may seek surcharge directly. Trust creditors generally look to trust assets when the trustee contracts in a disclosed fiduciary capacity, while a trustee who conceals the capacity can be personally bound. Protection mechanisms exist and have statutory lim - its. Exculpatory clauses are enforceable under Section 28-73-1008 of the Arkansas Code Annotated, but no clause protects bad faith or reckless indifference to the trust’s purposes or the beneficiaries’ interests, and a clause drafted by the trustee is treated as an abuse of the relationship unless the trustee proves it was fair and adequately communicated. Delegation is the sec - ond shield. Under Section 28-73-807, a trustee who prudently selects an agent, defines the scope of the delegation, monitors performance, and documents that review is not liable for the agent’s decisions. Trust terms may also allocate powers to designated per - sons, directing the trustee on defined matters, and fiduciary liability insurance backstops 6.3 Fiduciary Regulation Fiduciary investment is governed by the prudent investor rule codified within the Arkansas Trust Code at Sections 28-73-901 to 28-73-908 of the Arkansas Code Annotated. A trustee must invest and manage trust assets as a prudent investor would, considering the purposes, terms, distribution requirements, and other circumstances of the trust. Investment decisions are evaluated at the level of the whole portfolio and its overall strategy rather than asset by asset, and no investment category is imprudent in itself. The statute requires diversification unless the trus - tee reasonably determines that, because of special circumstances, the purposes of the trust are better
served without it, under Section 28-73-903, and it imposes duties of loyalty and impartiality among ben - eficiaries. The rule is a default that the instrument may expand, restrict, or eliminate, so retention language for legacy family assets is common and enforceable. 6.4 Fiduciary Investment The Arkansas standard is modern portfolio theory written into law. Prudence is judged by total return and portfolio-level risk rather than the old category rules. Diversification is mandatory by default, and the special circumstances exception carries real weight in a state where trusts hold farms, timber, minerals, and closely held company stock, particularly when the instrument expressly authorises retention. Trusts may hold active businesses, and many do, from row crop operations to operating companies. The trustee who effectively runs a business wears two hats, and the friction points are loyalty and prudence. The cleaner structure places the business in a limited liability company with capable management between the trust and operations, supported by express reten - tion and operation language in the instrument. Prudent delegation to qualified managers, documented moni - toring, candid reporting to beneficiaries, and fiduciary insurance address most of the risk that remains. 7. Citizenship and Residency 7.1 Requirements for Domicile, Residency and Citizenship Citizenship is exclusively federal, and Arkansas con - fers none of its own. The state law questions are domi - cile and residency. Domicile is an act coupled with an intent, meaning physical presence in a place plus the state of mind that regards it as a permanent home, and every person has exactly one domicile at a time. A domicile continues until it is abandoned and a new one is legally established, and neither absence alone nor intention alone will end it. For income tax purposes a person is a resident based on domicile or based on maintaining a permanent place of abode in the state while spending more than six months of the year in Arkansas in aggregate. Close cases turn on the whole factual record, including
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