When a Fiduciary Has Not Yet Used the Power
Fiduciaries sometimes hold powers they do not want to exercise. A trustee might have discretion over distributions that creates an unwanted tax result. A personal representative might hold a power that conflicts with other duties. The law allows the fiduciary to disclaim that power entirely.
If a fiduciary disclaims a power held in a fiduciary capacity that has not been exercised, the disclaimer takes effect as of the time the instrument creating the power becomes irrevocable.
A.R.S. § 14-10011(A)When the power has never been used, the disclaimer reaches back to the moment determined by the instrument creating the power. At that point, the instrument becomes irrevocable, and the law treats the fiduciary as though they never held the power at all.
This matters for an interest in property held within a trust. If the fiduciary's power could affect who receives that interest, disclaiming it removes the fiduciary from the decision. The property then passes based on the remaining trust terms.
After the Power Has Been Exercised
A fiduciary can also disclaim a power after having used it before. In that case, the disclaimer does not undo past exercises. It takes effect right after the last time the power was used.
A disclaimer under this section is effective as to another fiduciary if the disclaimer so provides and the fiduciary disclaiming has the authority to bind the estate, trust or other person for whom the fiduciary is acting.
A.R.S. § 14-10011(C)This provision also allows one fiduciary's disclaimer to bind co-fiduciaries. It only works if the disclaimer says so and the disclaiming fiduciary has authority to act on behalf of the estate or trust. This prevents one co-trustee from eliminating powers that others may need.
For families, this means a trustee who feels uncomfortable with a broad discretionary power has a path to step back. An agent acting in a personal or representative capacity can do the same. The key question is whether the fiduciary existed and was alive immediately before the death or event that triggered the power. If so, the disclaimer rules in this section apply.
A fiduciary considering a disclaimer should also check whether it could require the instrument creating the power to be reinterpreted. Courts look at the full context, not just the disclaimed power in isolation.