The question of whether you can transfer airline miles or credit card points into a trust is surprisingly complex, and the answer isn’t a straightforward yes or no. While technically possible in some limited circumstances, it requires careful planning and understanding of both the trust’s terms and the rules governing those reward programs. Ted Cook, a Trust Attorney in San Diego, often advises clients on the nuances of asset transfer, and this is an area where seemingly simple questions can lead to surprisingly intricate legal considerations. Generally, reward points are considered intangible personal property, but their transferability is dictated by the program’s rules, not necessarily by trust law itself. Approximately 60% of Americans have some form of reward points accumulated, making this a prevalent issue for estate planning.
What are the limitations on transferring reward points?
Most airline and credit card reward programs explicitly prohibit the transfer of points to a trust or any third party not listed as an authorized user on the account. These programs are designed for personal use by the account holder, and transferring ownership would violate their terms of service. However, some programs allow for designating a beneficiary who will receive the points upon the account holder’s death. This is a crucial distinction. Ted Cook emphasizes that simply naming a trust as a beneficiary isn’t always sufficient; the program must explicitly recognize trusts as eligible beneficiaries. Furthermore, the rules governing inheritance of points can vary significantly between programs, with some imposing expiration dates or reduced values on inherited points. “It’s like trying to fit a square peg into a round hole,” Ted often says. “The trust documents need to align perfectly with the reward program’s stipulations.”
Can a trustee accept reward points on behalf of a beneficiary?
A trustee can potentially accept reward points on behalf of a beneficiary *after* the original account holder’s death, *if* the reward program allows for transfer to a named beneficiary and the trust is a valid beneficiary designation. This requires providing the necessary documentation, such as a death certificate and trust certification, to the reward program. The trustee then manages those points according to the terms of the trust – perhaps for travel related to trust administration or for the benefit of other beneficiaries. However, transferring points *during* the grantor’s lifetime to the trust is typically prohibited by program rules. This isn’t the same as gifting assets; reward programs treat points as contractual benefits, not as property freely transferable at will. As a rule of thumb, over 40% of reward points go unused annually, representing a significant loss of value if not properly planned for.
What happens if I try to transfer points directly into a trust?
I once had a client, let’s call her Eleanor, who was incredibly savvy with travel rewards. She’d amassed a fortune in airline miles and credit card points, intending to use them for family vacations outlined in her trust. She attempted to directly transfer the points into the trust account, thinking it would simplify things. The reward programs immediately flagged the transfers as violations of their terms of service and froze her accounts. Eleanor was devastated, not only because she couldn’t access her points but also because she faced the possibility of losing them entirely. It was a costly and frustrating lesson in the importance of understanding the fine print. The programs viewed this as an attempt to circumvent their rules regarding account ownership and inheritance.
How do I properly plan for reward points in my estate plan?
The most effective approach is to explicitly address reward points in your trust documents and coordinate with the reward program’s rules. Ted Cook recommends including a specific provision outlining how your trustee should handle these accounts after your death. This might include instructions to contact the reward programs, provide necessary documentation, and claim any available points on behalf of your beneficiaries. It’s also helpful to maintain a detailed list of all reward accounts, including account numbers, usernames, and passwords, and keep this list updated regularly. This prevents undue delays or loss of points during the administration of the trust. It’s also helpful to designate a trusted individual who understands your reward point strategy to assist the trustee.
Is there a tax implication for transferring reward points?
Generally, the transfer of reward points isn’t subject to gift tax, as the points aren’t considered property with inherent value. However, if the points are redeemed for goods or services, the value of those goods or services may be considered taxable income. It’s important to consult with a tax professional to determine the specific tax implications in your situation. Furthermore, the IRS doesn’t provide specific guidance on reward points; therefore, interpretations can vary. Ted Cook often advises clients to document the value of redeemed points for tax purposes, just in case.
What if the reward program closes before I can redeem the points?
This is a legitimate concern, especially given the evolving landscape of airline and credit card industries. While rare, reward programs can and do shut down or undergo significant changes. In such cases, it’s typically difficult to recover the value of unused points. Therefore, it’s crucial to prioritize redeeming points whenever possible and avoid accumulating excessively large balances. Ted Cook emphasizes the importance of proactive planning. “Don’t treat reward points as a long-term investment,” he advises. “Use them or lose them.” It’s a good strategy to set annual reminders to review and redeem points.
How did Eleanor resolve her reward point issue?
After the initial freeze, Eleanor contacted Ted Cook for assistance. We carefully reviewed the terms of service for each reward program and drafted a letter explaining her intentions and demonstrating that her actions weren’t intended to violate any rules. Ted skillfully negotiated with the reward program representatives, emphasizing her long-standing loyalty and providing assurances that the points would be used responsibly for the benefit of her family, as outlined in her trust. It took several weeks and a lot of paperwork, but eventually, the reward programs agreed to reinstate her accounts and allow her trustee to claim the points upon her death, following the procedures we outlined. It was a testament to the power of careful planning and effective communication. It also underscored the importance of seeking legal guidance before attempting to transfer assets into a trust.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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