A.R.S. § 14-10814

Discretionary Powers and Tax Savings for Arizona Trustees

Verified April 4, 2026 • 57th Legislature, 1st Regular Session

When a trust gives the trustee broad discretion over distributions, Arizona law still requires that power to be exercised in good faith, consistent with the trust's terms and the beneficiaries' interests. Special rules apply when the trustee is also a beneficiary, to prevent unintended tax consequences.

Title 14, ARIZONA TRUST CODE

azleg.gov

Discretion Does Not Mean Unlimited Power

Many trust instruments use sweeping language like "absolute" or "sole" discretion when describing a trustee's distribution authority. That does not give the trustee a blank check. Arizona law requires that even broad discretionary powers be exercised in good faith, in line with the trust's stated purposes, and only for the benefit of the trust's beneficiaries.

Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of terms such as absolute, sole or uncontrolled, the trustee shall exercise a discretionary power in good faith as to only beneficiaries of the trust and creditors of the trust and no other persons.

A.R.S. § 14-10814(A)

This matters because a trustee who makes distributions outside the trust's terms, or who favors one beneficiary without justification, could face liability for breach of fiduciary duty.

When the Trustee Is Also a Beneficiary

Federal tax law creates a trap when the same person serves as both trustee and beneficiary. If a beneficiary-trustee can distribute trust assets to themselves without limitation, the IRS may treat the trust assets as part of that person's taxable estate. Arizona addresses this by limiting a beneficiary-trustee's discretion to distributions for health, education, support, or maintenance, an "ascertainable standard" recognized by the Internal Revenue Code.

A person other than a settlor who is a beneficiary and trustee of a trust that confers on the trustee a power to make discretionary distributions to or for the trustee's personal benefit may exercise the power only in accordance with an ascertainable standard relating to the trustee's individual health, education, support or maintenance.

A.R.S. § 14-10814(B)(1)

If every trustee's power is limited by these rules, the court can appoint a special fiduciary to exercise that power. These restrictions do not apply during any period a trust remains revocable, or to a marital trust that previously qualified for the estate tax marital deduction.

14-10814. Discretionary powers; tax savings A. Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of terms such as absolute, sole or uncontrolled, the trustee shall exercise a discretionary power in good faith as to only beneficiaries of the trust and creditors of the trust and no other persons, including creditors of the beneficiaries, except only to the extent that creditors of beneficiaries are expressly entitled to attachment pursuant to section 14-10504, subsection B and in accordance with the terms and purposes of the trust and the interests of the beneficiaries. B. Subject to subsection D of this section, and unless the terms of the trust expressly indicate that a rule in this subsection does not apply: 1. A person other than a settlor who is a beneficiary and trustee of a trust that confers on the trustee a power to make discretionary distributions to or for the trustee's personal benefit may exercise the power only in accordance with an ascertainable standard relating to the trustee's individual health, education, support or maintenance within the meaning of section 2041(b)(1)(A) or 2514(c)(1) of the internal revenue code. 2. A trustee may not exercise a power to make discretionary distributions to satisfy a legal obligation of support that the trustee personally owes another person. 3. Except in the case of a special needs trust, a settlor who is a trustee of a trust that confers on the trustee a power to make discretionary distributions to or for a beneficiary may exercise the power only in accordance with an ascertainable standard relating to the beneficiary's health, education, support or maintenance. C. A power whose exercise is limited or prohibited by subsection B of this section may be exercised by a majority of the remaining trustees whose exercise of the power is not so limited or prohibited. If the power of all trustees is so limited or prohibited, the court may appoint a special fiduciary with authority to exercise the power. D. Subsection B of this section does not apply to: 1. A power held by the settlor's spouse who is the trustee of a trust for which a marital deduction, as defined in section 2056(b)(5) or 2523(e) of the internal revenue code, was previously allowed. 2. Any trust during any period that the trust may be revoked or amended by its settlor. 3. A trust if contributions to the trust qualify for the annual exclusion under section 2503(c) of the internal revenue code.

View on azleg.gov

This page provides general legal information about Arizona statutes and is not legal advice. For guidance on how this law applies to your situation, speak with a qualified attorney.

Related Statutes

§ 14-10101The Arizona Trust Code: Short Title and What It Covers

§ 14-10102Which Trusts Are Covered by the Arizona Trust Code

§ 14-10103Key Definitions in the Arizona Trust Code

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