Author Topic: Family member in financial trouble, need direction  (Read 4043 times)

anonymatt

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Family member in financial trouble, need direction
« on: January 18, 2016, 07:22:25 AM »
I'm used to helping family and friends with questions about savings, retirement, spending, housing, etc. in the context that they are basically choosing between gratification now vs. later. But in either case they'll be ok. But now I have a family member in dire straits. I think she needs professional help. Who should she turn to?

She is a recent widow around age 65. Her husband recently passed away from myriad medical ailments. She has no savings. Her only income is social security. She is underwater on her home in Nevada and she's considering walking away.

Two major issues on top of this bad situation:
1. The life insurance policy of her recently deceased husband had lapsed. The policy was around $100k. He was very sick, resigned from his university job, the university stopped paying the policy, the insurance company had a wrong/old home address on file and the letter to renew the policy did not reach their home, the e-mail with information to renew their policy was sent to his e-mail address but he was not in the mental capacity to access any email.. and ultimately the grace period to extend the policy lapsed, and then he passed away. She wants to find a lawyer to sue the insurance company, claiming some kind of negligence like "they were trying to communicate with a man who was extremely sick and not mentally competent and/or they should have gone to greater lengths to get in communication with her/somebody else to renew". I think ultimately it's not the insurance company's responsibility. Does anybody think this is an avenue worth pursuing?

2. The deceased had considerable student loan debt from a PhD program from long ago. He took on this debt while they were married. As I understand it, the debt will be forgiven, but she will have to pay taxes on it. She doesn't have that money. And she is worried that "fake" income bump will increase her Obamacare health insurance premiums.

She needs one or more professionals (I can pay for it). Does she need a financial advisor? A CPA? A personal bankruptcy lawyer?

She's willing and capable of finding a part time job. She lives in Nevada.

Long ago (40 years) he was in the Air Force. I don't know if there are special support programs for widows of former military personnel.

Any advice is appreciated.

little_brown_dog

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Re: Family member in financial trouble, need direction
« Reply #1 on: January 18, 2016, 08:09:42 AM »
Yikes. One of the lawyer mustachians will be much more helpful with this but I’ll give you my general sense. It seems from your description the insurance company made all reasonable efforts to contact them and it would be very hard to prove that it was the company’s responsibility to automatically know that the addresses on file (both home and email) were insufficient for communication.  It sounds like unfortunately your family members just forgot about the insurance policy and now she is paying the sad price.

As far as discharging student loans upon death, it will depend on the type of loan (federal vs. private), whether or not she cosigned on them, and whether or not they are subject to repayment under the community property state laws (a quick google search says Nevada is a community property state). My extremely non-expert understanding is that if she cosigned, or if the loans are considered community property, she will have to keep paying them.  Discharged loans on death are counted as taxable income. "In fact, the Department of the Treasury has specifically stated that student loans cancelled due to the Death and Disability Discharge (Section 437(a) of the Higher Education Act of 1965) are taxable." (taken from credit.com). Either way, based on just my limited understanding of these situations, it looks like she will have to pay something (either loan payments, or taxes) and probably won’t get to walk away without paying anything. Claiming inability to pay due to hardship might be a tough sell since you mentioned she is physically capable of working.

« Last Edit: January 18, 2016, 08:12:37 AM by little_brown_dog »

skuzuker28

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Re: Family member in financial trouble, need direction
« Reply #2 on: January 18, 2016, 08:28:33 AM »
I'll defer on speaking to the insurance thing, since that isn't an area that I have any experience in.

For the student loans, if they are discharged they will be considered ordinary income in the year of forgiveness.  HOWEVER, she can exclude cancellation of debt income to the extent she is insolvent, which since she is upside down in her house and has no other assets could mean none of it ends up being taxable.  I would definitely recommend speaking with a CPA.

Note: walking away from her home could also produce a taxable cancellation of debt event.

MDM

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Re: Family member in financial trouble, need direction
« Reply #3 on: January 18, 2016, 01:30:17 PM »
If she can't afford a CPA, consider this free service: http://www.aarp.org/money/taxes/info-2004/about_aarp_taxaide.html

Seems she fits the target audience.  Site locator here: http://www.aarp.org/applications/VMISLocator/searchTaxAideLocations.action.

lakemom

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Re: Family member in financial trouble, need direction
« Reply #4 on: January 18, 2016, 04:28:58 PM »
I'm no expert BUT as a widow I'm pretty sure she can elect either HER SS or HIS SS whichever is larger.  This is what my mother did....elected my deceased stepfathers SS since it was larger than hers.  Other than that I've no experience with the other issues.

Jim2001

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Re: Family member in financial trouble, need direction
« Reply #5 on: January 18, 2016, 04:43:07 PM »
On the insurance claim, it's probably not worth spending money for a lawyer to try to pursue that, though you could write a letter if it was fairly recently cancelled and at least ask.  Any decent HR department would have provided the information necessary to continue his insurance policy in his separation paperwork.  It sounds like the husband and wife neglected to act to continue the policy.  Sorry.

But, if we can turn this into a learning opportunity for everyone else on the board, most insurance companies will allow a policy holder to designate an alternate contact on the policy (mine goes to my sister).  That way when a payment is missed the policy holder and someone else both get the past due notice.

I've also done this with water company payments.

Another Reader

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Re: Family member in financial trouble, need direction
« Reply #6 on: January 18, 2016, 05:43:33 PM »
She has no need for a financial adviser.  She has no assets to invest. 

She does need to understand the social security situation ASAP.  Perhaps you can help her make an appointment at the local office, gather the paperwork, and accompany her.  Likely she steps up to his payment, but overall, it's a reduction (one payment instead of two). 

With her low income for 2016, she may no longer be eligible for ACA subsidies, which could be a nasty surprise.  She may instead be eligible for Medicaid.  She will need help with the math and applying for Medicaid if that is the option.  The health insurance issue changes completely when she turns 65 and becomes eligible for Medicare.  She will need help navigating Medicare supplemental insurance, which will be a lot cheaper than ACA insurance.  She may also sign up for a Medicare Advantage plan, although those have some issues.  At some point, she may be on a combination of Medicare and Medicaid. 

Navigating the student loans may require a knowledgeable advocate, possibly an attorney. The rules are complicated and I would not rely on an internet forum for answers.  This needs to be sorted out before too long because of her potential liability. 

What to do with the property depends on her income and where she can live in the future.  An attorney that understands short sales and foreclosures but looks for alternatives might be necessary.

The insurance is likely not worth pursuing, and in any event should not be considered as part of her assets.

Not everyone in this lady's situation is lucky enough to have a relative willing to help to the extent you are.  What you are doing is an excellent example for the rest of us to remember.

Cassie

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Re: Family member in financial trouble, need direction
« Reply #7 on: January 18, 2016, 05:56:38 PM »
It is wonderful that you are going to help her. I definitely would hire a good CPA to look at the tax implications for walking away from the home and he can tell her if she will be insolvent. It sounds like she will be and that will help. I think the insurance company did a fair job of trying to find him. That is really sad. The suggestion about comparing which SS to take is also good since often the man is the higher earner.  She may want to look into senior housing. They usually charge about 1/3 of your income for rent. I have a few friends that live in that type of arrangement in Nevada.  So glad she is healthy enough to work p.t.

esq

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Re: Family member in financial trouble, need direction
« Reply #8 on: January 18, 2016, 08:14:52 PM »
I admire you for helping out a family member in need. 

I can tell you that a few years after my Dad passed away we found out Mom was eligible for VA benefits because my Dad had served in the army.  The county even had people who would act as liaison between us and the VA dept.  They were very helpful in navigating the process.  Definitely something to look into and could be a huge help. 

Best of luck to her.

anonymatt

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Re: Family member in financial trouble, need direction
« Reply #9 on: January 19, 2016, 11:54:34 AM »
Thank you everyone for their input. I have relayed much of this information.

Unfortunately, I am across the country so I can only help her so much. I agree with the sentiment re: Life Insurance. I think it's an emotional reaction for her to right a perceived wrong. I hope she does not pursue this. It would cost her money she doesn't have and it's unlikely she'll receive anything.

I think it's important for her to find a CPA and perhaps an estate lawyer (type person) to answer the question about inheriting the debts, the debt forgiveness, and what that means for her income.

There's just SO MUCH she has to deal with at the same time. Obviously she is and was not prepared for it. I'm not sure why more wasn't done as her husband was sick and declining for over a year. I would imagine this happens to a lot of people, which is very sad.

NoStacheOhio

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Re: Family member in financial trouble, need direction
« Reply #10 on: January 19, 2016, 12:23:23 PM »
Unfortunately, I am across the country so I can only help her so much. I agree with the sentiment re: Life Insurance. I think it's an emotional reaction for her to right a perceived wrong. I hope she does not pursue this. It would cost her money she doesn't have and it's unlikely she'll receive anything.

Did they move before he stopped working? If so, why didn't his HR department update the address when he notified them? I've never dealt with any of the cascading address changes directly, I just change it in our employee portal and everything else gets updated automatically.

anonymatt

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Re: Family member in financial trouble, need direction
« Reply #11 on: January 19, 2016, 12:32:03 PM »
No, we've always been on opposite sides of the country. Afaik, their address didn't actually change, the company had the wrong zip code on file and the paper documents did not make it into their mailbox. Or, maybe they did and just got lost in a pile of paperwork.