Posts Categorized: Estate Planning

There are lots of things people include in their Will or Trust: who will care for their minor children if they can not, special documents for disabled beneficiaries, even planning for pets. But how about those frequent flyer miles that have been collecting? Can you give those to someone when you pass away? Well, the answer seems to be a qualified “maybe.”

The formal policy for whether the miles can be passed on is found in the terms and conditions of the contract with each airline. Some airlines allow it, some do not, and some say they do not, but maybe the actually do – or at least they will if they do not know the owner has died.

In 2012, The New York Times asked six airlines about their policy on transferring miles upon the death of a member, and found that two have written policies allowing this: American and US Airways. JetBlue also allows transfers, but does not have a written policy. The transfer will be done upon request and within a year of death.

On the other hand, Southwest has a written policy that does not allow transfers of its RapidRewards when a member dies, but the account remains open for two years (see Tip 4 below for transferring miles using the account and password).

Delta’s official policy is to not allow the transfer, but until March 2013, had an affidavit on its website that would start the transfer process. That affidavit has now been removed, and here is an excerpt from the new Delta SkyMiles Membership Guide:

“Restrictions on Transfer

Miles are not the property of any Member. Except as specifically authorized in the Membership Guide and Program Rules or otherwise in writing by an officer of Delta, miles may not be sold, attached, seized, levied upon, pledged, or transferred under any circumstances, including, without limitation, by operation of law, upon death, or in connection with any domestic relations dispute and/or legal proceeding (emphasis added).”

So, given the various airline policies, is there anything you can do to try and ease the transfer or redemption? Since these miles may be worth thousands of dollars, it’s at least worth trying – despite what the written policy may say.  Here are some tips that may help:

1. Mention your frequent flyer miles in your Will or Trust.  You can either give them to a specific person, or give them to a group of people. For example, “I give my miles (or points) in my [name of program] to my spouse, if she survives me. If she does not survive me, I give this bequest, in equal shares, to my then living children.”

2. If you are on the receiving end of the transfer, do not wait too long. Even airlines that allow transfers may have deadlines. Also remember, depending on the airline, inactive accounts may expire after a certain amount of time – usually 24 -36 months – so even if you have the account number and password, the miles may be gone.

3. If you are claiming miles under a bequest, be prepared to provide a copy or original death certificate and a copy of the Will that has the language giving the miles. Some airlines will also want an affidavit signed by the designated beneficiary.

4. Keep a list of your frequent flyer account and passwords up to date and let family members know where they can find that information. Most airlines allow transfers using the online account, but may limit the number of miles able to be transferred.

5. If you are unable to transfer the miles out of the account, call the airline customer service department. Despite some written policies, a customer service representative may be more accommodating and willing to help.

Additional Information:

Reuters: Don’t Let Frequent Flier Miles Die With You (2013)

NY Times Article: The Afterlife of Your Frequent Flier Miles (2012)

Forbes: How to Pass On Frequent Flyer Miles (2012)

American Academy of Estate Planning Attorneys: Up-in-the-Air Estate Planning: Frequent Flyer Miles (2011)

Note: When I was writing this post, I was not sure whether to use “flier” or “flyer.” I noticed that my research showed both spellings seemed to be used interchangeably. So, I researched and found that either is acceptable. I decided that “flyer” was the better choice.  “Flier or Flyer”

People put a lot of thought into their Wills and Trusts – particularly the part about who will get what after they die. Specific gifts are carefully drafted, percentages are tweaked, and special needs beneficiaries are addressed using special documents.

But there may be other assets that slip through the cracks of this careful planning.  As part of the estate planning process, all beneficiary designations should be reviewed, and copies placed into the estate planning binder. Any asset that has a beneficiary designation will go to the person listed – regardless of the direction in the Will or Trust. Since this designation pulls the asset out of the control of a Will, it is called a “non-probate” asset.

In Massachusetts, there are several statutes that specifically deal with non-probate transfers. M.G.L. ch. 190B, sec. 6-101 states that the asset “must be paid” to the person designated.

M.G.L. ch. 190B, sec. 6-309 deals with “Transfer on Death” designations, and states that the Transfer on Death designation will be followed because it is a “contract” between the owner and the company. Because another document is controlling the distribution of the account – not the Will – it is a non-probate transfer. Any contradictory terms in a Will or Trust are ignored.

So, even though you may have spent hours planning the distribution of your PROBATE estate, make sure you also check your beneficiary designations regularly. Keep copies of the current designations with your other estate planning documents so the Personal Representative can notify the beneficiary.

Additional Information:

Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds (Forbes)

Joint Ownership Is Not An Estate Plan

Estate Planning With An IRA

For many people, the “Fiscal Cliff” deal done in January 2013, resolved potential estate tax issues: the Federal threshold for taxable estates was permanently moved to $5,000,000.00 per person (indexed for inflation, so the actual 2013 amount is $5,250,000.00).  If the total estate is below that amount, there are no Federal taxes on the estate.

However, 21 states and the District of Columbia still impose some form of tax on estates. A few states impose an “inheritance tax” of varying degrees, depending on the relationship of the deceased to the person getting the inheritance. Some states are gradually eliminating the state estate tax entirely. Other states, Massachusetts for example, have a lower threshold than the Federal amount ($1,000,000.00 in Massachusetts), and cap the estate tax taxable percentage (in Massachusetts the maximum tax rate is 16%).

Forbes Magazine has an interesting and useful state-by-state map detailing estate and inheritance taxes: Where Not To Die In 2013  

A more detailed analysis of the estate tax: Is the Estate Tax Doomed (NY Times)

Estate planning is not the first thought most parents have when their child is accepted to college. But it should be addressed before your child goes off to school. Once your child turns 18, they are no longer a minor.  Legally, they are an adult. Because the child is no longer a minor, parents do not have the automatic legal authority to simply take over their child’s financial affairs – or even get information about health care issues.

Several years ago, a friend of mine called me, furious and upset. Her son, who had just turned 18 years old, had gone off for his freshman year at an out-of-state college. That morning she had received a text message from him, saying he felt awful, and was going to the infirmary on campus. He said he would be in touch to let her know what was going on.

A couple of hours passed, and she heard nothing. She tried calling him, but he did not answer his cell phone. Now worried, she called the school infirmary to see what was going on.  She was stunned when the nurse would not confirm that her son was even in the infirmary. The nurse said that the law prohibited her from talking about her son’s medical condition, without written permission from her son. My friend tried the, “I pay the tuition” argument. It didn’t sway the nurse at all.

Finally, her son called and said he was fine – he had never actually gone to the infirmary because he felt better by the time he got there. So, he decided to go out to breakfast instead. Sorry for not calling her back, he just forgot.  When he came home for Thanksgiving, she brought him into the office and he signed a Health Care Proxy and Power of Attorney.

So, if you have a child who is turning 18, have them sign heath care documents and a financial Power of Attorney.

NBC News: Even Young Adults Should Start Estate Planning

In an effort to make their children’s lives easier when they pass away, many people use joint ownership as a method for distributing their estate. They believe that this will be the simplest way for their heirs to inherit. In some cases, very few cases, this may be true. In most cases, however, joint ownership can have unintended consequences.

What happens with joint accounts?

Joint Tenants With Rights of Survivorship (JTROS)

When there are two or more owners on an account, and one passes away, the surviving owner(s) automatically becomes the owner of whatever was once jointly owned. If that was the original intent of the joint ownership, then joint ownership for that asset may make sense. But, joint ownership will also trump the terms of a Will. For example, if your Will states everything is to be divided into equal shares for your four children, but all of your bank accounts are jointly owned with one child, that one child is legally entitled to all of the accounts.

The joint owner may be willing to actually share the accounts but there is no legal requirement that they do so. Even if the joint owner wants to divide everything equally, they may run into IRS gifting restrictions.

Trying to evenly distribute an estate with joint ownership, rather than using a Will or a Trust, becomes more difficult as people get older. At the beginning, it can seem like a good idea. Let’s say you have four children, and purchase four $25,000 CDs – each with one child as a joint owner. Everyone will get an equal amount, and there will be no probate necessary. But, what happens if one CD is used to pay for expenses – a new car, a new roof, or needed to pay for a medical emergency? Now, one child has no inheritance, the CD has been used. Further, getting to the bank to keep everything equalized may become a problem.

Convenience Accounts: some banks will allow accounts to be set-up as convenience accounts, meaning that if the “real” owner passes away, the other person listed is not entitled to what remains in the account. Check with your bank for their policies on convenience accounts.

Jointly Owned Account May Be Subjected to Other Owner Problems

            Having a joint owner means that the joint asset is as much the other owner’s as it is yours. If the joint owner runs into financial problems, and needs to file for bankruptcy, the asset is at risk. A divorce may also place the asset at risk. And, there is always the possibility that the other owner can simply take all of the money from the joint account.

Are Joint Accounts Ever A Good Idea?

There are circumstances where it may make sense to have a joint owner. Most spouses have joint accounts. If you only have one child, it may make sense to have joint accounts. Just remember that if that child is married, or having any financial difficulties, your asset may become a part of any divorce or bankruptcy process.

If you want the other owner to get that asset at your death and do not want a public record, joint ownership may be the right decision. Since jointly owned assets are not controlled by the Will, they do not pass through the probate process. Therefore, no accounting or public record will show that the joint account was received by the surviving owner.

For estate planning purposes, assets owned with any person other than a spouse can present enormous difficulties. Joint ownership can create hard feelings between children, may present IRS gifting problems, and may go against the distribution terms of your  Will or Trust. It is easier to have a single document – a Last Will and Testament or a Trust – that controls the distribution of all of your assets, than trying to juggle multiple jointly owned assets.

Thinking of creating your own estate plan? You may want to think again. In Massachusetts, there are dozens of cases where a Will or Trust has been challenged because an error was made in the signing or the drafting of the actual document.  Most mistakes are because the now deceased person never consulted a lawyer.

Potential mistakes made in a do-it-yourself estate plan have the potential to cost your heirs much more than you might have saved yourself in legal fees. If there is a chance that someone may challenge the will or trust, you do not want to make it easier for them to succeed because of a mistake that could have been avoided.

Even simple estates are ripe with “oddball” things that can go wrong. Especially with wills and trusts, there are many details that a layperson simply wouldn’t think of. A recent article in Forbes chronicles one story of a layperson who ran into trouble after making a simple clerical error in creating his do-it-yourself living trust.

The man used a pre-made form to set up a living trust in 1984. When he deeded his house to the trust, however, he dated it 1983 (one year before the trust was created). In 2009 the mortgage on the house was fully paid off and the man, now 75 years old, wanted to borrow against it. Due to the mistake he made 25 years earlier, the bank wouldn’t provide a loan because the man didn’t have a clear chain of title to his home.

Two weeks and $2,000 in legal fees later, the man was able to take out a loan against his house. Had he hired a law firm to draw up the original trust in 1984 it would have been much less stressful and only cost him about half the amount he eventually paid in legal fees.

Additional Resources:

Farrell v. McDonnell, 81 Mass.App.Ct. 725 (2011) (Will execution was proper despite the fact testatrix did not verbally acknowledge her signature in the presence of witnesses).

Flynn v. Prindeville, 327 Mass. 266 (1951) (Will execution was not proper because testatrix did not acknowledge her signature or identify document as her Will  in the presence of witnesses).

Article about the Battle over artist Thomas Kinkade’s Estate 

The battle centers around two hand-written notes presented by the artist’s girlfriend – Amy Pinto-Walsh – that appear to give her Mr. Kinkade’s house and $10,000,000. Mr. Kinkade’s estranged wife, and the mother of his four children, disputes the validity of both notes.  Ms. Pinto-Walsh was not included in any of Mr. Kinkade’s other estate planning documents.

Many people have some type of Individual Retirement Account that should be reviewed as part of the estate planning process. Since an IRA is part of the ultimate distribution, it is a good idea to contact the company managing the IRA account and confirm that the beneficiary designations are up to date, and accurately reflect your wishes.  This is especially important if a spouse has passed away since the original form was filled out – you want to make sure that contingent beneficiaries are designated.

[Note: This is also a good time to check all beneficiary designations, including life insurance and annuities.]

Naming a Trust Beneficiary of an IRA

If I am preparing a trust for a client, they frequently ask whether their trust should be named the beneficiary of the IRA. The answer is, “No, No, No.”  The reason for this is that if a person is named as a beneficiary of an IRA, they get to stretch out the remaining funds over their lifetime, resulting in lower taxes. However, since a trust is not a “person” it has no life expectancy. Thus, the entire amount remaining in the IRA is distributed, and all taxes are due immediately. It may be possible to convince the IRS that the trust was simply a conduit, and the real beneficiaries are people, but trying to do that would cost the estate legal fees that can be completely avoided.

Naming Charities as Beneficiaries of an IRA

If a client has charitable intent, naming one or more charities as beneficiaries of an IRA can work out very well. Unlike individuals, a charity will probably be able to avoid any tax on the distribution, and the estate will be able to take full advantage of the charitable contribution if estate taxes are required.

Naming One Person as Beneficiary, But Wanting Something Else

 Name the people you actually want to receive the IRA. If you name one person, but tell them that you actually want them to distribute it to other people is a bad idea. First, the person named will have to cash out the entire IRA to follow your wishes. The will have to pay the taxes on the entire amount. Second, if they are the sole listed beneficiary, they do not have to cash it out at all. Finally, if they do cash in the IRA and pay the taxes, they may have trouble actually making the distributions. The IRS allows any person to gift $13,000 per year, so if the distributions are more than that, they person designated will have to file a Form 709 Gift Tax Return with the IRS.

IRAs can be an important part of the legacy handed down to children and grandchildren. If designated properly, payments from an inherited IRA may be made for decades to the listed beneficiaries. To ensure this happens, check that the current designations reflect your wishes, that they are up-to-date, and if you have named your trust as the beneficiary, contact your estate attorney for a review of your planning.

Additional Information:

Five Rules for Inherited IRAs (forbes.com)

What is an Inherited IRA?  (money manager.com)

WHEN TO UPDATE YOUR ESTATE PLAN 

As an estate planning attorney, I review lots of existing Wills and Trusts. Many of these documents were done years ago – and many of them still reflect the wishes of the client.

However, there are times when I get a call that goes something like this: “I think I need my Will/Trust changed. I just looked at it and it is not what I want anymore. I am going to [fill in exotic location] and I need it changed before I get on the plane.”

Documents done years before may have been perfect for the circumstances at that time. But, circumstances change: personal relationships evolve; assets may increase, so tax planning may be an issue not addressed in the prior documents; charitable bequests may be more important; or special needs planning for an heir may now be a necessary part of the plan.

Here are a few suggestions on when it may be time to have you documents changed – or at least reviewed:

1. You did not have children when your documents were prepared.
2. The executor or trustee you named is now over 70 years old.
3. A beneficiary named in your documents has – or may have – a disability.
4. A beneficiary named in your documents is in a nursing home.
5. You want to give specific personal property to specific people.

Many attorneys will be more than happy to review your documents to see if changes are really necessary. It may be that you existing documents are perfectly fine, but if not, better to start the updating process now than wait until the day before your scheduled flight.

Additional Reading:

When To Change Your Will

Five Reasons Baby Boomer Need To Review Estate Plans – And It’s Not About Taxes

TopRetirements.com released its 2012 list of the “Worst States to Retire.” It will probably come as no surprise to those of us that live here that Massachusetts finished fifth on the list – behind Connecticut, Illinois, Rhode Island, and Vermont. Among the reasons that Massachusetts made the list were high property taxes and the high cost of living. In the 2011 report, Massachusetts finished 8th.

Surprisingly – at least to me – was that Vermont finished in the fourth spot. In addition to the climate, the article cited very high property and income taxes as the reason. Only five factors were use to compile the list: fiscal health, property taxes, income taxes, cost of living, and climate. If those factors are not important to you, TopRetirement offers a site where you can customize your report.

The article acknowledged that there may be more important factors to people contemplating retirement: proximity to family and friends, social services, and the quality of medical care.

Additional Information:

• Worst Regions and Cities for Natural Disasters
• 100 Most Popular Places to Retire (2011)