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.

Beware the Trust Mills and Their Peddlers

A very good Times Herald article sheds light on the problematic practice of non-attorneys pushing estate planning documents on unsuspecting consumers.  Not surprising, this advice is given for the non-attorney’s own financial gain.  There’s big money in peddling “estate plans” on an unsuspecting public.

In Michigan, our State Bar has received numerous complains regarding estate plan salespersons practicing law without an attorney license by giving legal advice. The Michigan Attorney General and the Michigan Office of Financial and Insurance Services have received numerous complaints about deceptive sales practices by annuity and life insurance sales persons.  To counter these predators, the State Bar of Michigan Elder Law and Disability Rights Section and the Probate and Estate Planning Section have been promoting “A Living Trust Education Initiative,” the goal of which is to educate Michiganders about deceptive estate planning schemes and what to look out for.

These predators, commonly known as “trust mill peddlers,” use two primary schemes to separate you from your money. The first scheme is a free lunch or dinner presentation under the guise of providing “estate planning” or similar information.  (Who can pass up a free meal?)  The second is the home visit generated by a lead card mailed to you offering free estate planning information that you fill out and mail back to them. Some will even use a combination of the two.

Once they get in front of you, trust mill peddlers will attempt to sell you a trust plan without learning about your situation or your assets and income. They tell you they don’t need to know the specifics of your situation, your family, or how you want your assets distributed after your death, because they know what you need and their trust plan will protect you.  They will often times employ scare tactics to get you to buy their trust plan. Their ultimate goal, however, isn’t to provide you with an estate plan. It’s to get you to purchase expensive annuities, life insurance, and other investment products through the companies they represent, on the basis that the trust plan will work best with these products (which generate high commission income and fees for them).

So, how do you protect yourself from the trust mill peddlers? Most importantly, always rely upon trusted, knowledgeable, and licensed legal, insurance, investment, and tax professionals to help you with your financial and legal affairs. If you do not know any yourself, ask a friend or relative for a referral.  Second, avoid the common tactics used by trust mill peddlers, such as informational meetings including a meal, lead cards sent to you in the mail offering free estate planning information, and non-attorneys coming to your home to sell you an estate or trust plan.

Read the entire article here.

New Once-Per-Year Rule On IRA Rollovers Looms

Beginning January 1, 2015, IRA owners will be limited to one IRA rollover per year under a new Internal Revenue Service rule. The IRS issued the rule in response to a recent US Tax Court decision which held that multiple rollovers between different IRAs owned by the same taxpayer violated the Internal Revenue Code. The new rule will be applied prospectively and will impact taxpayers owning more than one traditional IRA or Roth IRA.

Under the new IRS rule, an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA (whether a traditional IRA or Roth IRA) in the preceding 1-year period that was rolled over into an IRA. The new aggregation rule, which takes into account all distributions and rollovers among an individual’s traditional and Roth IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014. This creates a special transitional safe harbor for those taxpayers who received a distribution from an IRA in 2014 and properly rolled it over into another IRA. Such a rollover will be disregarded for purposes of whether a 2015 distribution can be rolled over, provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution.  This gives IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

A conversion from a traditional IRA to a Roth IRA is not subject to the aggregation rule, and such a rollover is disregarded in applying the one rollover per year limitation to other rollovers. Note, however, that a rollover between an individual’s Roth IRAs would preclude a separate rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

The one-per-year rollover limitation does not apply to a rollover to or from a qualified plan [such as a 401(k) or 403(b)] (and such a rollover is disregarded in applying the one-per-year rollover limitation to other rollovers). More importantly, it does not apply to direct trustee-to-trustee transfers.

This rule will certainly encourage taxpayers to make direct trustee-to-trustee transfers when moving money between IRA accounts.  Trustee-to-trustee transfers expressly avoid the new rollover aggregation rule.

The rules governing distributions from IRAs and other retirement accounts are very complex, and very tricky. Even seemingly simple transactions involving an IRA or other retirement account can result in disastrous tax consequences. And the Internal Revenue Code is extremely unforgiving. Consult your CPA or other tax adviser, or give me a call. I can help.

Never Assume – Here’s Another Reason Why.

People can be surprisingly nonchalant when it comes to beneficiary designations on retirement accounts and life insurance policies. They assume even if they have missed a beneficiary designation or it is out-of-date, the remaining account balance will automatically go to their surviving spouse or children upon death.

However, a recent survey done by the National Investment Company Service Association (NICSA), reveals that there is little consistency among IRA providers as to how default IRA beneficiary designations are handled. According to the survey, the default beneficiary will vary widely depending on the provider. For example, 43% of accounts default to a surviving spouse, then the estate; 30% default to the account owner’s estate (not a spouse or children); and only 22% percent default automatically to a spouse, then the children, then the estate. To complicate matters, many people have multiple IRAs at more than one institution, which means the default beneficiary treatment of each account will vary.

A beneficiary designation on an IRA or other retirement account is critical because retirement accounts are automatically excluded from an account owner’s probate estate as long as the account has at least one person designated as the beneficiary who survives the account owner. If there is no then living beneficiary, the account is deemed to have no beneficiary and it must be paid to the deceased owner’s estate. This has two very bad effects: First, a probate estate has no life expectancy and, consequently, the account has to be liquidated, which can result in a significant income tax bill; Second, because the account must be paid to the owner’s estate, it becomes subject to the claims of the owner’s creditors – and the creditors enjoy a prior right to the funds ahead of surviving family members, even a spouse.

IRA providers will include default beneficiary designation clauses in their account agreements so that if the account owner fails to designate a beneficiary before death, or the designated beneficiary dies before the account owner, the balance in the account will still pass to a default beneficiary per the account agreement. But as the survey shows, you cannot assume who that beneficiary is, and there’s a nearly 1-in-3 chance the default beneficiary will be the owner’s estate.

I’ve seen too many cases where a retirement account or life insurance benefits passed to an unintended beneficiary, and it’s next to impossible to correct something like that after the owner’s death.

One of the homework assignments I give to all of my planning clients is to verify all of their beneficiary designations on each of their retirement accounts and life insurance policies. It is very common for clients to come back to my office having discovered that they missed a beneficiary designation or one or more were out-of-date. At least they have a chance to correct them.

So, don’t leave it to chance. Do your homework and make sure your beneficiary designations are up to date.