How Timing Depends on Whether the Power Has Been Used
A power of appointment gives someone the authority to direct where property goes, often within a trust. If you hold that power in a personal capacity (not as a trustee or fiduciary), this statute governs what happens when you disclaim it.
If a holder disclaims a power of appointment or other power not held in a fiduciary capacity, the following rules apply: 1. If the holder has not exercised the power, the disclaimer takes effect as of the time the instrument creating the power becomes irrevocable.
A.R.S. § 14-10009(1)If the power has never been exercised, the disclaimer reaches all the way back to when the instrument became irrevocable. In effect, the law treats the power as though it was never granted. This is significant for tax and estate planning because it can remove the power from the disclaimant's taxable estate entirely.
Disclaiming After Partial Exercise
If the holder has already exercised the power at least once, the timeline shifts. The disclaimer takes effect immediately after the last exercise of the power, provided the power is something other than a presently exercisable general power of appointment.
The instrument creating the power is construed as if the power expired when the disclaimer became effective.
A.R.S. § 14-10009(3)Once the disclaimer is effective, the creating instrument is read as though the power simply expired. No one else inherits the power. It ceases to exist. The property subject to the power then passes according to whatever default provisions the instrument contains for this situation.
For families with complex trust structures that include powers of appointment, understanding this statute helps clarify what options are available when circumstances change. Disclaiming a power can simplify trust administration, reduce tax exposure, or redirect property in a way that better serves the family's current needs.
