Critical Post-Divorce Estate Planning Moves

Divorce can be a traumatic event.  But you cannot rest once the divorce is final.  You must immediately take action to update your estate plan to reflect your new marital status. A short article in Forbes online does a good job of summarizing what must be done with an estate plan following divorce. You need to review and revise your existing estate planning documents with the help of a competent estate planning attorney. These include your will, trust, power of attorney (financial and medical), and beneficiary designations on life insurance and retirement accounts. Your ex-spouse should be removed as a fiduciary (executor, agent, trustee, etc.) in your estate plan. Further, your ex should be removed as a beneficiary of your estate plan (including life insurance and retirement accounts). If you do not, part of your estate could pass to your ex, which may not be your intent. However, you need to make sure that any changes are consistent with the provisions of your divorce decree. As a legally binding instrument, you cannot make a change to your estate plan that contradicts the divorce judgment. Read the entire article here.

Post-Bankruptcy Mortgage Modification

A client contacted me regarding a potential home mortgage loan modification. The client had filed a Chapter 7 bankruptcy two years ago and received a discharge of all of her debts, including the mortgage loan debt. She wanted to pursue a loan modification under the federal government Home Affordable Modification Program, the “HAMP” program. Her concern was that by agreeing to a modification of the mortgage loan now, she would become personally liable for the mortgage debt that had been discharged in her bankruptcy.

If you file a consumer bankruptcy, you have the option to reaffirm (reinstate) a debt that would otherwise be discharged in the bankruptcy. By reaffirming a debt in bankruptcy, you remain personally liable for the debt after the bankruptcy, which means that if you later default on the debt, the creditor can sue you and recover the money owed through garnishment or other action. In general, bankruptcy lawyers do not recommend clients reaffirm debts since the point of bankruptcy is to shed the personal liability for the debts.

But what if, like my client, you didn’t reaffirm a mortgage debt in bankruptcy and later want to modify the loan. Does the mortgage modification reinstate the personal liability for the mortgage loan debt?

Even if you did not reaffirm your mortgage in your bankruptcy, you can work with your lender on a HAMP mortgage modification post bankruptcy, and the modification does not revive the personal liability for the discharged debt. The current HAMP Handbook, version 4.5 states that “Borrowers who have received a Chapter 7 bankruptcy discharge in a case involving the first lien mortgage who did not reaffirm the mortgage debt under applicable law are eligible for HAMP.” In addition, the following language must be included in the mortgage modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”  Furthermore, Section 524 of the U.S. bankruptcy code prevents a debtor and a creditor from entering into any reinstatement agreement after bankruptcy for a debt that was discharged in bankruptcy.

A HAMP mortgage modification does not create a new loan  It changes the terms of the mortgage loan, and you are not agreeing to again be personal liable for the debt. (The only instance where personal liability on a modified loan survives bankruptcy is if you reaffirmed it during the bankruptcy.)

Understand that a loan modification is entirely different from a post-bankruptcy mortgage refinance, where an entirely new loan is being created after the bankruptcy. In that situation, you would have personal liability on the loan because it is a new debt that arose after the bankruptcy.

The HAMP morgage modification program is scheduled to expire December 31, 2016.

Critical Estate Planning Steps for College Students

College students are getting ready to head back to school. Whether your child goes away to school or commutes from home, don’t let them start the school year without taking these critical estate planning steps:

Have your student sign a medical power of attorney. If your child has an accident or becomes seriously ill, unless your child is under age 18, medical personnel will not discuss your child’s medical condition or treatment with you without authorization. Commonly referred to as a “patient advocate designation,” your child can appoint you to speak with doctors and make medical treatment decisions for them in the event they cannot do so themselves. It’s a good idea for the school’s medical clinic to have a copy on file, too.

Have your child sign a separate HIPAA authorization. Even with a valid medical power of attorney, medical providers may refuse to release your child’s medical information or speak to you regarding their medical condition. Doctors, hospitals, and other medical facilities fear the legal repercussions of unauthorized disclosures of one’s medical information. Even though you are the parent, they will not speak or release information to you without your child’s prior consent. I have handled cases where family members were forced to petition the courts to gain access to their student’s medical information in an emergency.

Finally, have your student sign a durable power of attorney. Parents of college students have all heard the speech from school administrators – “Due to federal privacy regulations, we cannot discuss anything regarding your student without prior written authorization” – and they mean it. To discuss a tuition or dorm bill, dispute a lab fee, or discuss any of your child’s financial affairs with any third party, you need written authorization. That’s where the durable power of attorney comes in to play.

Under a durable power of attorney, you child can appoint you as their agent to handle their personal and financial affairs if they can’t themselves. Everything from banking and bill paying to tuition or room and board issues can be handled by you as your child’s agent. If your child becomes ill or has an accident while away at school, as your child’s agent you will be able to access bank accounts, make sure their bills are paid, and keep their affairs in order until they regain the ability to do so.

This is a very exciting time for college students and parents. Make sure your student is fully prepared by making sure they give you their medical power of attorney, HIPAA authorization, and durable power of attorney.

Court of Appeals Upholds Rejection of SSI Special Needs Trust

The 8th Circuit Court of Appeals recently upheld a decision by the Social Security Administration to reject a type of special needs trust, known as a “(d)(4)(A) trust” (a trust designed to hold the assets belonging to a disabled person). A (d)(4)(A) trust is commonly used in special needs planning to qualify a disabled individual for Social Security supplemental income (SSI) or Medicaid benefits. This type of trust must be created by a disabled individual’s parent, grandparent, guardian, or a court, to hold the disabled individual’s personal funds.  The disabled individual cannot establish this type of trust for themselves.

In Draper v Colvin, the parents of 18-year-old Stephany Draper, who had suffered a traumatic brain injury in an automobile accident, attempted to create a (d)(4)(A) special needs trust to hold and administer the proceeds of a personal injury settlement for her benefit. Stephany had granted power of attorney to her parents to settle her personal injury claim and transfer the settlement funds to a trust on her behalf. Her parents, acting individually, established the trust “pursuant to 42 U.S.C. § 1396p(d)(4)(A).” They then transferred the settlement proceeds (more than $400,000) into the trust by authority of the power of attorney.

In reviewing her claim for benefits, the Social Security Administration found that, despite the express language of the trust agreement to the contrary, Stephany’s parents were acting as her agents and not as her parents when they created the trust, and an agent is not a person authorized by the statute to create a (d)(4)(A) trust. Therefore, the settlement proceeds were countable assets in determining Stephany’s eligibility for SSI benefits. SSA rejected her claim because the settlement proceeds put her over the asset limit. The 8th Circuit Court of Appeals affirmed the SSA’s denial of benefits.

The case turned on a very technical interpretation of the Social Security rules in regards to the language of the trust agreement and the way in which the trust was created and funded. The case underscores how careful one must be when it comes to qualifying for governmental benefits such as Medicaid or SSI and how easy it can be to run afoul of the rules despite careful planning.

You may read the entire decision here.

What The Heck? I Collected Unemployment Benefits Last Year And Now The State Wants Me To Pay Them Back!

A colleague of mine told me about a recent call from a person who had received unemployment benefits last year, and now the State of Michigan has sent him a notice he was overpaid and is demanding return of the overpayment amount, with fines and penalties to boot.  The caller explained that he was back to work, but was barely making ends meet.  He wanted to know what he could do.

The State may demand return of just a portion of the benefits paid because of a calculation error for instance (I know, even if it’s not your fault), or it may demand return of all of the benefits paid because the State has determined that the recipient was not eligible to receive unemployment benefits in the first place.  Unfortunately this is a fairly common situation – and people are oftentimes still unemployed, or are back to work making less money than before (and they have other debts accumulated while unemployed) – when the State sends them a repayment demand.  If you are in that situation, what can you do, and will bankruptcy help?  Can you include the overpayment amount as a dischargeable debt in bankruptcy?

A lot depends upon whether you are still receiving benefits.  If you are, the State can recoup the overpayment from you by reducing your future benefits until the overpayment is recovered. In this situation, a bankruptcy will not help. Generally, when you file bankruptcy all creditor enforcement actions are stayed, or stopped, by order of the bankruptcy court.  However, the bankruptcy stay does not extend to the recoupment of an overpayment.  So, if you are still collecting benefits and the State has reduced future payments to recoup the overpayment, bankruptcy will not help.

What if you are no longer receiving unemployment benefits, will bankruptcy help you?  Again, it depends.

If you are no longer receiving unemployment benefits, the overpayment amount is treated as an ordinary debt that’s owed to the State.  In this case, the overpayment amount is dischargeable in either a Chapter 7 or a Chapter 13 bankruptcy, with one big exception: if you obtained the benefits by fraud.  Under the bankruptcy code, if you committed fraud to obtain the benefits, then the overpayment debt will not be dischargeable in bankruptcy.

Okay, let’s say the overpayment amount is dischargeable (no fraud), you may still be facing fines and penalties.  What about those?  Fines and penalties are dischargeable in a Chapter 13 bankruptcy; they are not dischargeable in a Chapter 7 bankruptcy.

As with any serious legal matter, you should carefully assess your situation with an experienced attorney to determine whether bankruptcy may be an appropriate solution if faced with a demand from the State to recover an unemployment benefit overpayment.



He Is Risen!

Now after the Sabbath, as the first day of the week began to dawn, Mary Magdalene and the other Mary came to see the tomb. And behold, there was a great earthquake; for an angel of the Lord descended from heaven, and came and rolled back the stone from the door, and sat on it. His countenance was like lightning, and his clothing as white as snow. And the guards shook for fear of him, and became like dead men.

But the angel answered and said to the women, “Do not be afraid, for I know that you seek Jesus who was crucified. He is not here; for He is risen, as He said. Come, see the place where the Lord lay. And go quickly and tell His disciples that He is risen from the dead, and indeed He is going before you into Galilee; there you will see Him. Behold, I have told you.”

So they went out quickly from the tomb with fear and great joy, and ran to bring His disciples word.

Matthew 28: 1-8.

Happy Easter!

I Bought a Car Yesterday, Can I Cancel the Sale Today?

A client called me the other day and asked about canceling the purchase of an automobile. They thought they had 3 days to cancel the purchase. Unless the salesman came to their home and wrote the sale there, I told them, they had no right to cancel.

In general, when you buy something at a store or merchant’s place of business and later change your mind, you don’t have the right to return the merchandise just because you change your mind and no longer want it.   However, if you buy an item in your home or at a location that is not the seller’s permanent place of business, you may have the option to cancel the sale and return the goods for a full refund. Here’s how the rule works:

Under a Federal Trade Commission (FTC) rule know as the “Cooling-Off Rule,” you have three days to cancel certain purchases.  You do not have to give a reason for canceling – you have the right to change your mind.

The Cooling-Off Rule applies to sales that take place at your home, workplace, or dormitory. It also applies to sales that take place at facilities rented by the merchant on a temporary basis, such as hotel or motel rooms, convention centers, and restaurants. The Cooling-Off Rule applies even when you invite a salesperson to come to your home to make a sales presentation. Under the Cooling-Off Rule, your right to cancel for a full refund extends until midnight of the third business day after the sale. You do not need a reason to cancel your purchase under the rule.

The salesperson must tell you about your cancellation rights at the time of sale. (The contract or receipt should explain your right to cancel, too.) They must also give you two copies of a cancellation form (one to keep and one to send) and a copy of your contract or receipt. (If the seller did not give you cancellation forms, you can write your own cancellation letter.)

As with any rule, there are exceptions. The Cooling-Off Rule does not cover sales that: (i) are under $25; (ii) are for goods or services not primarily intended for your personal, family, or household purposes; (iii) are made entirely by mail or telephone; (iv) are the result of prior negotiations at the seller’s permanent business location where the goods are regularly sold; (v) are needed to meet an emergency are made as part of your request for the seller to do repairs or maintenance on your personal property (purchases made beyond the maintenance or repair request are covered).

In addition, sales exempt from the Cooling-Off Rule are those involving: (i) real estate, insurance, or securities; (ii) automobiles, vans, trucks, or other motor vehicles sold at temporary locations, provided the seller has at least one permanent place of business; (iii) arts or crafts sold at fairs, shopping malls, civic centers, schools, and the like.

A cancellation notice must be sent before midnight of the third business day after the contract date. (Saturday is considered a business day under the rule; Sundays and federal holidays are not.) Proof of the mailing date and proof of receipt are important, so one should consider sending the cancellation notice by certified mail with a return receipt request. If the merchant is local, the cancellation notice may be hand delivered. One must make sure to retain a copy of the cancellation form or letter.

If you cancel your purchase, the merchant has 10 days to: (a) cancel and return any promissory note or debt instrument you signed; (b) refund all your money and tell you whether any product you still have will be picked up; and (c) return any trade-in. Within 20 days, the merchant must either pick up the items, or reimburse you for mailing expenses, if you agree to send the items back.

You must make the purchased items available to the seller in as good condition as when you received them. If you do not make the items available to the seller, or if you agree to return the items but don’t, you remain obligated under the contract.

You Can’t Do That! 5 Prohibited IRA Transactions.

5 (of many) things you cannot do with your IRA – ever:

1. Transfer an IRA to a spouse. Unless incident to a divorce judgment, you may not transfer an IRA to your spouse. Doing so creates a taxable distribution. (Oh, and you can’t transfer it to anyone else either.)

2. Retitle your IRA to your trust for estate planning purposes. Only individuals can own an IRA. Your trust is not an individual. So, changing the owner of your IRA from you to your trust is a taxable distribution.

3. Pledge your IRA as security for a loan. You are not allowed to use your IRA as collateral for a loan. If you do, you’ve made a “deemed” distribution from the IRA, a taxable event.

4. Lend money from your IRA to yourself or a family member. IRAs are prohibited from lending money to any “disqualified persons.” “Disqualified persons” include the account owner, members of the IRA owner’s family, and certain business entities owned by the IRA owner.

5. Invest IRA funds in collectibles. “Collectibles” include artwork, antiques, gems, stamps, and coins (with certain narrow exceptions). Any IRA funds invested in collectibles are deemed to have been distributed from the IRA, a taxable event.

Generally, when IRA assets are used in a prohibited transaction, the IRS treats them as having been distributed from the IRA on the first day of the year in which the transaction took place. The amount of the distribution must be included in the IRA owner’s income for that year and, if the owner is under age 59½, early distributions penalties will apply.

A Savior Is Born Unto You

“And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid. And the angel said unto them, ‘Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. For unto you is born this day in the city of David a Saviour, which is Christ the Lord. And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger.’ And suddenly there was with the angel a multitude of the heavenly host praising God, and saying, ‘Glory to God in the highest, and on earth peace, good will toward men.’“

Luke 2: 8-14.

Merry Christmas!

Location, Location, Location (Part 2)

A little while back we looked at the 10 worst states for retirement living.  Now we’ll examine the 10 best states for retirement living.  The ranking, courtesy of Bankrate, considered several factors, including local weather, access to health care, cost of living, crime rate and tax burden. This year’s ranking also adds a broad standard-of-living measurement from the Gallup-Healthways Well-Being Index, a comprehensive survey gauging people’s satisfaction with their surroundings.

Surprisingly, popular retirement states like Arizona and Florida did not crack the top 10.  The following are Bankrate’s top 10 states for retirees to spend their golden years:

10. Virginia.  Virginia offers retirees relatively low taxes, low cost of living, low crime, and a moderate climate.

9. Iowa.  Iowa ranked well because of the availability of exceptional health care and a low cost of living.

8. Idaho.  Idaho landed near the top because of its low cost of living, low crime, and lots of sunshine.

7. Montana.  Montana finished in 7th place due to an abundance of sunshine, good health care, low taxes, and low crime.

6. Nebraska.  Nebraska offers residents a low cost of living, low crime, good health care, and plenty of sunshine.  (Good for the corn, too.)

5. Wyoming.  Wyoming made the top five due to the lowest taxes in the country, low crime, and abundant sunshine.

4. North Dakota.  North Dakota made the fourth spot due to its low cost of living, low crime, low taxes, good health care, and placing at the top of Gallup-Healthways’ Well-Being Index (a comprehensive measure of happiness).

3. Utah.  Utah ranked high in every measure, including the Well-Being Index.

2. Colorado.  Colorado took the proverbial silver medal with low cost of living, low crime, low taxes, and good health care.

1. South Dakota.  The top podium spot went to South Dakota (!), which did very well in almost every category, including good health care, extremely low taxes, low cost of living, and low crime.

You can read the entire article here.