All of the above answers provide great guidance when dealing with your trust issue. I am an Arizona licensed attorney with a great deal of experience in trusts. However, without sitting down with you and understanding the terms of the trust, I can only provide the following guidance.
Under Arizona law, Arizona Revised Statutes 14-10414, after notice to the qualified beneficiaries, the trustee of a trust that consists of trust property having a total value of less than one hundred thousand dollars or that is uneconomic to administer may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.
This statute does not apply if you yourself has an interest in the trust. If you choose to terminate the trust and she continues to push back, she may ask an Arizona court to replace you as a trustee. Based on the nature of your question, it sounds to me like you would prefer not being the Trustee so being replaced is not a concern of yours.
As far as using the corpus of the trust to defend a lawsuit against you as the Trustee, I really cannot answer the question without reviewing the trust itself. It is true in Arizona that the Trustee can use trust funds to defend the trust. However, a review of the trust would be necessary to determine whether you are acting pursuant to the terms of the trust thereby entitling you to use the funds, or whether the actions are prohibited by the trust which may preclude you from using the associated funds. You are welcome to call and we can discuss further.
THESE COMMENTS MUST NOT BE CONSIDERED LEGAL ADVICE. Comments made on websites such as Avvo.com are provided for informational purposes only. The only way to determine whether how the law may apply to your particular situation is to consult with an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.
Consult with a local attorney. Most will give you a free initial consultation. After a review of the documents and the facts of the situation they can advise you as to what to do. If the trust allows you to close it and distribute the assets she will have no recourse. Most trusts will also have a provision to close it out if the assets drop below a certain amount.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
Ordinarily you would have the right to use the trust funds to defend lawsuits filed against you in your role as trustee. I suggest that you file a petition with the local probate court asking to resign as trustee and have her named as the successor trustee. Then she can do as she pleases with the remaining trust money and you won't have to worry about being liable.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Both of the previous answers contain good advice. There is no reason why you should have to continue to act as trustee with only a small amount of money in the trust.
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My comments are not intended to establish an attorney-client relationship, are not confidential, and are not intended to constitute legal advice. Proper legal advice can only be given by an attorney who agrees to represent you, who reviews the facts of your specific case, who does not have a conflict of interest preventing the representation, and who is licensed as an attorney in the state where the law applies.