Almost invariably, settlors give their trustees broad powers regarding trust property. Often these broad powers include the power to convey and encumber trust property and the power to loan trust property. But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property. In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.
Arthur L. Hamel’s trust instrument gave the trustee broad authorization to control and administer trust property, including “the power to do all acts that might legally be done by an individual in absolute ownership and control of the property” and provided the trustee with “the power to lend money to . . . any beneficiary under [the] Trust . . . as may be agreed upon between my Trustee and such parties, provided, however, that any such loan shall be adequately secured and shall bear a reasonable rate of interest.” The trust also granted to the trustee “any power my Trustee needs to administer my Trust Estate, which is not hereinafter listed.” This same paragraph provided the trustee with “the power respecting property in [the] Trust Estate that an absolute owner of such property would have.”
Time to get into the weeds on the scope of a trustee‘s powers. There are basically two sources of power for a trustee – the trust instrument and state law. Where those two intersect, overlap, conflict, or diverge is where you will likely find the bulk of fiduciary litigation about trustee powers. (more…)
When someone passes away, usually their next of kin, agent or fiduciary will begin to compile a list of the decedent’s assets. Rarely will such a list include the decedent’s frequent flyer miles. However, depending upon how many miles have been accrued during the decedent’s life, frequent flyer miles can be worth hundreds, maybe even thousands, of dollars. In such cases, heirs or beneficiaries of the decedent’s estate may wish to benefit from the value the decedent has amassed in frequent flyer miles.
Most airlines allow for mileage transfer among the living, but it is usually an expensive task to accomplish, often accompanied by fees and yearly limits. The transferability of frequent flyer miles upon death is no more simple. Susan Stellin, the author of a New York Times article entitled “The Afterlife of Your Frequent Flyer Miles,” stated “I asked six airlines if they allow transfers of frequent flyer miles after a member’s death and got a straight answer from only four.”
Most airline loyalty program policies claim that points accumulated are the property of the issuing company, giving them complete discretion as to how they are handled in the case of death. For example, United’s Mileage Plus policy states: “[a]ccrued mileage and certificates do not constitute property of the member. Neither accrued mileage nor certificates are transferable (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise by operation of law.” Southwest Airlines has a strict policy that they do not transfer RapidRewards points once a member dies.
Such policy provisions, therefore, appear to provide that miles cannot be bequeathed to, or inherited from, another person. Nevertheless, the formal policy found in an airline’s terms and conditions can vary considerably from what the airline’s customer service center will offer. Policies differ from practices, so begin by calling the program’s service center to determine whether the miles can in fact be transferred or inherited.
For example, the terms and conditions of American’s Aadvantage program and Delta’s SkyMiles program provide that accrued mileage and award certificates are not transferrable at death. Both airlines’ customer service departments, however, provide exception procedures. According to its website, American Airlines has the discretion to credit accrued mileage to persons specifically identified in court-approved wills upon receipt of documentation satisfactory to American Airlines and upon payment of any applicable fees. Delta also allows for the Administrator or Executor of the Member’s Estate to request, via affidavit accompanied by a death certificate, to reinstate and transfer the Miles from the deceased Member’s account to one or more members’ accounts.
Getting Around Transferring Miles
In most cases, it is not the miles, but the award tickets the miles can purchase, that are important. Fortunately, it is not difficult to have an award ticket issued in the name of a friend or family member. Susan Stellin also suggests that “[o]ne way you can make things easier on your heirs is to leave a list of your frequent flier account numbers and passwords.” Doing this allows your loved ones to use your miles to issue tickets to themselves without having the hassle of fees and paperwork.
Updating Your Will
Last, do not leave it to the airlines’ “sole discretion” to honor your wishes. People who have significant frequent flier miles should consider designating who gets their miles in a Will. Questions have been raised concerning the taxability of frequent flyer miles, but according to Announcement 2002-18, the IRS has not pursued a tax enforcement program with respect to promotional benefits such a frequent flyer miles. Therefore, there is likely no negative consequence to adding frequent flyer miles to your estate plan.
The Illinois Appellate Court in In re Estate of Doman issued a ruling on October 11, 2012 that once more clarifies why it is important to have a Will and, depending on circumstances, potentially a revocable trust. (See our prior posts on Why Do I Need a Will? (Part 1 and Part 2) and Why Do I Need a Trust?)
Trial Court Proceedings:
In the Doman case, Sara and Mark Doman were in the home stretch of their divorce when Mark died on July 4, 2011. On June 10, the trial court had issued a written dissolution judgment and reserved ruling on the ancillary issues, with a status hearing set for July 11. Sara’s attorney called the court on July 5 to inform the trial court of Mark’s death and the trial court entered a docket entry that stated, “Cause set for 7/11/11 is vacated. Cause is dismissed.”
Probate Court Proceedings:
On September 28, 2011, Sara filed a petition in the probate court stating that their divorce proceedings were dismissed and that she was Mark’s surviving spouse and seeking appointment as administrator of Mark’s estate. Sara’s daughter, Aimee (who was a child of Sara’s from a prior marriage whom Mark had legally adopted), filed a counter argument on October 13, arguing that the trial court’s June dissolution judgment on grounds only was a final judgment.
The probate court found the July 5 order only dismissed the ancillary issues, not the dissolution itself, and therefore, Sara was not Mark’s heir, appointing Aimee and her sister Bethany (also adopted by Mark) as co-administrators of Mark’s estate. Sara appealed. (more…)
Section 408(d)(3) of the Code specifically deals with when a distribution from an individual retirement plan to an individual does not need to be included in the gross income of the individual recipient but rather may be paid into another IRA for the benefit of such individual. This recontribution of an IRA distribution is referred to in this provision as a “Rollover Contribution” and must be completed within 60 days of the receipt of the distribution from the distributing IRA. Section 408(d)(3)(C), however, denies rollover treatment for inherited IRAs, and specifically states that any amount received by an individual from an IRA account inherited on the death of another individual cannot be contributed to another IRA for his or her benefit unless the individual was the surviving spouse of the decedent.
The taxpayer in Beech v. Commissioner, T.C. Summary Opinion 2012-74 (Docket No. 1948-11S, 7/26/2012, however, attempted to complete a Rollover Contribution from the IRA she received from her mother to an inherited IRA in her mother’s name for her benefit. In this case, Citi issued the check directly to the petitioner from her mother’s IRA, which she then deposited into an American Funds IRA. The taxpayer argued that it was her intent to effect a trustee-to-trustee transfer, but what was actually done was a distribution from her mother’s IRA to her and an attempted Rollover Contribution to a new IRA. (more…)
PLR 201228017 provides a good reminder of the requirements for disclaiming an interest in a trust that was created prior to January 1, 1977. This PLR involves a disclaimer by a beneficiary within 9 months of attaining age 18.
In order for a disclaimer of a pre January 1, 1977 transfer not to be considered a transfer subject to gift tax, the disclaimer must be “unequivocal, effective under prior law, and prior to accepting any benefits. In addition, the disclaimer must be timely. In order to be timely, Reg. § 25.2511-1(c)(2) provides that the refusal must have been made “within a reasonable time after knowledge of the existence of the transfer.”
After reciting these general rules applicable to pre-January 1977 transfers, the PLR then relied on the Regulations under § 2518 applicable to post December 31, 1976 transfers. In respect of the timeliness of the disclaimer, the PLR states that the time period for determining the reasonableness of the lapse of time prior to the disclaimer, “the time limitation for making the disclaimer does not begin to run until the disclaimant has attained the age of majority and is no longer under a legal disability to disclaim,” citing Reg. § 25.2518-2(c). (more…)
Estate of Alfred J. Richard v. Commissioner, T.C. Memo 2012-173 (6/20/2012), is an unusual case in which the government sought to include 140 shares of preferred stock in A.J. Richard & Sons, Inc. (the “Company”) in the gross estate of the decedent, Alfred Richard (“Alfred”). The shares were initially reported on the estate tax return, but it was later determined that Alfred did not own the shares that passed through his predeceased wife’s will. The government’s arguments in opposition to the estate’s amended Tax Court petition reducing the number of shares of preferred stock from the 740 shares reported on the estate tax return by the 140 shares in Mrs. Richard’s name at the time of Alfred’s death, were each resoundingly overruled by Judge Goeke.
Mrs. Richard had died in 1997 at a time when she owned 140 shares of preferred stock in the Company and Alfred owned 600 shares of preferred Company stock. No probate administration was commenced and no estate tax return was filed for her estate. No shareholder meeting had been held and no shareholder vote had been taken from 1997 until 2004 when Alfred died, and the 140 shares of preferred Company stock still remained in Mrs. Richard’s name on the Company books at that time. (more…)
Hell hath no fury like a disinherited child. Or, if not fury, then at least an appetite for litigation.
Many estate planners recommend against total disinheritance and instead couple a token distribution with an in terrorem clause. That way the disinherited child stands to lose something if he or she pursues estate litigation. Of course, that doesn’t always work. Especially if the risk is greatly outweighed by the potential reward – say giving up a sure $5,000 for a possible $1 million.
So, what else can a testator do to ensure that his or her intent to disinherit is upheld if there is litigation?
In In the Matter of the Probate of the Alleged Will of Joan Pennella, a recent case out of New Jersey, we see the value placed by a court on the testator’s own explanation of why she disinherited two of her children.
Joan Pennella essentially disinherited two of her children, Sam and Carol. Those two children filed a claim alleging that Joan lacked testamentary capacity and that their brother, Carl, exercised undue influence over Joan.
The appellate court upheld the trial court’s finding that Joan had the requisite capacity to make a will and that there was no undue influence exercised over Joan. In reaching their decisions, the appellate and trial courts put emphasis on a handwritten letter from Joan explaining why she was largely disinheriting Sam and Carol.
If a child gets disinherited, judges and juries are going to want to know why. While plenty of witnesses can talk about why, the strongest explanation why comes from the testator him or herself. So, if a testator is set on disinheriting a child, it might be a good idea to have them put in their own words why they’re doing it.
In PLR 201231003, the taxpayer requested an extension of time to file the Form 8939 to make a timely election to apply the provisions of § 1022 of the Code to determine the basis of property acquired from a decedent who died in 2010, pursuant to § 301.9100-3.
Notice 2011-66 stated that an extension of time to file a Form 8939 could be sought and granted under four limited circumstance, one of which was that the taxpayer met the requirements for an extension under § 301.9100-3. That Regulation requires that the taxpayer acted reasonably and in good faith, defining such to include when the taxpayer “(v) Reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.” (more…)
Update: The IRS has now posted the final Instructions for the Form 706 for decedents dying in 2012, which can be found here.
The IRS has posted the final Form 706 for decedents dying in 2012, which can be found here. However, final Instructions have not yet been posted. Our discussion of the current Draft Instructions can be found here, but until the final Instructions have been released, they cannot be relied upon.