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How To Avoid A Federal Tax Lien (And What To Do If You Get One!)

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The last thing anyone wants to see after going to their mailbox is a notice from the Internal Revenue Service stating that there is a problem with their tax filing.  Mistakes do happen, regardless of who is preparing the return or business tax form submission. But, there are also times when numbers do not comport to government agency calculations, commonly resulting in an audit that produces circumstances the taxpayer does not expect nor want.

While tax avoidance within the guidelines is legal and acceptable, premeditated tax evasion is illegal when the Internal Revenue Service can provide sufficient evidence to press a case strongly. And when they do, they are serious. Very serious.

This leaves the audited delinquent taxpayer in a very precarious situation, to say the least, and the only recourse is to either pay up in full or retain an experienced tax attorney who understands how a tax lien can impact their estate. Here are a few steps that anyone being audited should consider.

Negotiating a Reduction During the Audit

The first step in stopping a potential tax lien is discussing the issue with the Internal Revenue Service agent during the audit. However, this should only be done with experienced legal counsel who can help mediate the discussion and evaluate the government claims based on existing tax laws. There is no code in the federal law statutes quite as extensive as the tax code, and the IRS has wide latitude when selecting a rule to apply.

Sometimes, those rules are technical and do not account for common mistakes, but sometimes minor differences could be negotiated away when the agent sees an opportunity to actually collect a significant portion of the delinquent amount in short order and settle the account quickly. This happens more often than taxpayers realize when they are honest about their return.

Bargain for an Installment Agreement

Installment agreements are a common method of settling a tax liability. An installment agreement allows the tax bill to be paid over an agreed-upon amount of time, which can work well for tax levies of under $25,000, because tax liens are not typically filed below the $25,000 threshold. However, taxes beyond the threshold can result in certain property being placed in lien and cause other issues with your estate.

Submit an Offer in Compromise

An offer in compromise, also known as an OIC, is a common method that many couples use when their tax debt is of any amount, but the delinquent taxpayer must prove they are qualified for this agreement. It is important to note that nearly two-thirds of all OIC submissions are denied. But, it can be a good faith step in getting a classification from the IRS that a debt is collectible but does not rise to the level of a lien motion.

They could also determine the tax debt is not collectible. The primary difference in these two rulings is that payments can be made toward the debt, which can help when there may be extenuating tax problems in following years, or that nothing is required to be paid. However, outstanding tax obligations are always filed against a couple’s credit report and stay in place until the debt is satisfied.

Paying in Full

The best method of settling an IRS tax debt to avoid a lien is paying the debt in full in any way possible, including applying for a loan that could make the matter one of a personal budget. While this may not work for all people, this is actually what the Internal Revenue Service prefers. This will also stop any damage the tax debt may have regarding personal credit ratings as well as ending a tax lien possibility.

One thing is for certain when dealing with the Internal Revenue Service – not paying taxes can assuredly result in final outcomes that no one wants to face. It is always important to address the problem as a serious life event, including how long it may take to emerge from the debt in good financial condition. Having an experienced estate planning and tax attorney who has dealt with estate planning issues and tax liens before can be the difference in an acceptable outcome or a lingering financial problem.

Proposed Skilled Nursing Facility Changes

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Moving a loved one into a skilled nursing facility (SNF) can be a stressful event for the patient and family. Many feel rushed and make rash decisions about placement because of the lack of information and perceived options. It is not always possible to plan for these life changes – sometimes, the need sneaks up without warning. This crisis can be further complicated with the lack of guidance excused as “patient choice”.

Using an estate planning attorney can help decipher the resident’s rights and hospital’s responsibilities. Traditionally, hospitals have cited legal restrictions as the force behind the lack of information and simply provided a list of nearby facilities for the struggling family.

Our professionals can help you sort through the language and stand firm on the resident rights for long-term treatment services. When moving a loved one from a hospital to a skilled nursing facility, you should expect more than a geographically relevant list.

The Centers for Medicare & Medicaid Services have proposed changes starting with a developed discharge plan within the first 24 hours of admittance. This plan needs to be comprehensive with the medications listed and the completed plan in place. The simple proposed changes keep a transparent communication line open from one facility to another. Patients and family members have the opportunity to review the plan in a less stressful timeframe over the course of the stay rather than making an immediate decision.

Traditionally, the decision to transfer to a patient to a skilled nursing facilities has happened in a short period – many times, even the day before. The patient and family did not have time to process the new plan let alone make a good decision, which creates a feeling of hopelessness through the lack of guidance and time. The structured collaborative plan prepares all involved for the possibility and transition.

With the openness of these revisions, the patient can be referred to a high-quality nursing home. Historically, the industry is known for overworked and stressed out nurses and staff. We can guide you through facility ratings – our team knows that the gamut of paperwork, finding quality measures, staffing history, and health inspections can be daunting.

Long-term nursing facilities usually mark the end of living in one’s home, and your loved one deserves the dignity of a voice. The increased sharing of patient information will help reduce the stress level and improve the difficult transition. Because patients, family, and health care providers work together to develop the plan, the patient and family are able to take more ownership in the decision making process.

These improved decisions improve a previously negative experience. With options, patients and their families can self-advocate and weigh the importance of a quality home that is further away versus one with a location closer to the family home.

How A “Gray Divorce” Can Affect Your Retirement Plans

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More and more married Baby Boomers are opting to face their golden years not as part of a couple but as a single individual.

With their children grown and raising children of their own, many older adults can’t see spending another 20 or 30 years with a spouse they no longer love or even have anything in common with.

What Is A “Gray Divorce”?

Although retirement is often thought of as the season of life when couples get to spend time together doing what they have planned for years, for some this period doesn’t live up to what they expected and a parting of the ways occurs. Dubbed “gray divorce”, the number of couples who are aged 50 and older who are splitting up has nearly doubled since the 1990s, according to a recent report by the Pew Research Center. The divorce rate has nearly tripled for those aged 65 and older over the same time period.

The dissolution of these long-term marriages not only impacts the family, but the retirement savings of the couple involved, who must now make changes to their financial plans.

Couples who opt for a gray divorce may find themselves suddenly having to live off half of the income they are accustomed to. That can leave them feeling hurt and resentful, especially since those going through a gray divorce often have less working years in which to rebuild their financial assets. Money that has been accumulated over a lifetime of saving in 401(k) plans, IRAs, or 457 or 403(b) accounts is often split between the couple during the divorce proceedings. The greatest fear of many retirees is that they will run out of money before they run out of life, and divorcing later in life will certainly impact how you spend your retirement years.

Update Your Beneficiary Designations

A gray divorce also impacts the couple’s estate planning. Often, married couples who have been together for a long time have executed estate planning documents such as wills, trusts, powers of attorney and advanced medical directives naming each other as the executors of the document. During a divorce, the couple can overlook changing the beneficiary and executors of these documents, which can lead to future legal problems.

It is vitally important for a divorcing couple, no matter their age, to update their estate planning documents in order to guarantee that their final wishes are adhered to and carried out. An estate planning attorney can craft these documents with language that allows your plan to stay as it is in the event of a divorce should you neglect to change your beneficiary and executor. The documents can also be drawn up in a way that spells out what happens in the event of a divorce.

As with most situations in estate planning, an ounce of prevention is worth a pound of cure – contact our team today for a consultation about your specific situation and to see how you can protect yourself and your future.

Approved for Medicaid: What if Your Loved One Receives an Inheritance?

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One of the most dreaded possibilities following Medicaid approval is a change in the Medicaid recipient’s situation, and one of the most common changes is the receipt of funds from the estate of a deceased family member.

In a previous post, we discussed the need for any at-home spouse to update their estate plan to ensure that any assets passing to a spouse in care are done so in a manner that will not jeopardize the ongoing Medicaid approval of the in-care spouse.  However, even if the at-home spouse takes care of things, there are always situations that can arise.  One of the more common ones involves the in-care spouse receiving an inheritance from a parent or child.

If an inheritance is received, the first thing to do is contact your Elder Law attorney if you worked with one.  If you didn’t there are some important things to remember:

  • You have thirty days in which to report the receipt of assets to the Department of Social Services where Medicaid was applied for. If you fail to report within thirty days, you may be responsible for reimbursing the State for funds expended on behalf of the Medicaid recipient while they were ineligible.
  • If the amount is small and can be spent on the needs of the Medicaid recipient, be sure to complete the spending prior to the last day of the month in which the inheritance is received.
  • If the amount is large, you still may be able to spend it down before the last day of the month. Consider prepaying for the individual’s funeral in full or paying off any outstanding obligations.
  • If there is an at-home spouse, consult with your Elder Law attorney about transferring the inheritance to the at-home spouse.
  • Do not give the money away to others – it will cause a period of ineligibility.
  • Do not sign a renunciation of your interest in the inheritance (or on behalf of the individual) – a renunciation is considered exercise of control over the asset which Medicaid views as a gift.

If, at the end of the month, the individual still has more than $2,000.00, they will need to pay privately for their care until they are back below $2,000.00.  Again, an Elder Law attorney will be able to guide you through this process in a manner that is beneficial for the Medicaid recipient and, if possible, for his at-home spouse, but do not wait – take affirmative steps to address the situation.

Approved for Medicaid: What If You Are the At-Home Spouse?

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Many North Carolina Medicaid situations involve a spouse needing care and health spouse that can still live at home. During the Medicaid application process, there are steps that an at-home spouse will need to take to ensure that he or she is protected to the fullest extent possible from any adverse Medicaid claims.  However, following the in-care spouse’s approval for Medicaid, the at-home spouse should take some additional steps.

Adjust Your Estate Plan

If you work with an experienced Elder Law attorney, he or she will likely encourage you to change your estate plan in conjunction with the Medicaid application and spend down.  The reason is that if the at-home spouse dies before the in-care spouse, the assets that were shifted to the at-home spouse for Medicaid qualification purposes may end up going right back to the in-care spouse. If that happens, not only will the in-care spouse lose Medicaid coverage, but all of those assets are now subject to spend down and claims for estate recovery.

Unfortunately, changing your estate plan may not be as simple as hopping on LegalZoom and generating a new Will.  The at-home spouse will want to make sure that the assets are disposed of properly and that if the he or she predeceases the in-care spouse, that the assets are retained in trust for the benefit of the in-care spouse in such a manner as to not affect Medicaid eligibility.  If you own real property, you will want to make sure ownership of it is properly structured.  You will want to make sure beneficiary designations are changed. There are a lot of steps that need to be taken, not all of which can (or should) be taken without the guidance of an Elder Law attorney.

Keep Assets Separate

Once the in-care spouse is approved for Medicaid, there will be ongoing redeterminations to ensure that the individual still qualifies for Medicaid.  The important thing to remember here is that unless the at-home spouse also ends up applying for Medicaid, the Department of Social Services that handled the application will not look at the assets of the at-home spouse again.  The at home spouse can receive inheritances and build up assets without fear of needing to go through additional spend down following a redetermination.

However, the at-home spouse needs to keep their assets separate from the in-care spouse.  Do not add the in-care spouse to any new accounts that are opened or property that is purchased.  If it happens, Medicaid coverage may be terminated.

Maximize the Spousal Income Allowance

The at-home spouse is, in certain situations, allowed to keep a portion of the income of the in-care spouse.  However, there is a limit to what can be retained, and if the at-home spouse’s income is large enough, there may be no retention. The determination of how much can be retained is made by the caseworker during the application, but it can also be adjusted throughout.  If the at-home spouse’s expenses increase, be sure to contact the caseworker and request a reassessment of the amount allowed.

Being approved for Medicaid is a relief, but it is important for the at-home spouse to stay aware of the situation and make sure that they are doing everything possible to protect the spouse receiving care and themselves.

Approved for Medicaid: What Are You Responsible For?

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 Having a loved one receive a Medicaid approval notice normally provides the family the chance to breathe easily.  However, some responsibilities don’t stop once someone is approved.

A Medicaid Approval/Denial Notice looks like this in North Carolina.  The first section, marked “Approvals”, outlines who has been approved, the program for which they have been approved, the months that are being covered and, most importantly, how much the person covered is responsible for paying to the nursing home each month.  That’s right, even with Medicaid a person may still have to pay something for his or her care.

This amount is called the “Patient Monthly Liability” or “PML”, and it applies to both the long-term care and special assistance programs.  It is based on an individual’s income, but there are certain allowances: personal needs ($20 or $66 per month, depending on the program), supplemental health insurance and, in situations where there is a spouse at home there may be an allowance made for that spouse to keep some of the other spouse’s income.  The PML has to be paid every month, or the person may be discharged from the facility, regardless of Medicaid status.

It is important for spouses to remember that none of their income needs to be paid as part of the PML.  If the PML assigned to the Medicaid recipient exceeds the income of that individual, contact the caseworker for clarification.

The bank account of the Medicaid recipient has to have a balance of less than $2,000.00 on the last day of every month.  Many times clients are concerned because the Medicaid recipient’s monthly income will push the account balance over $2,000.00. That income is supposed to go to either the nursing home or the at-home spouse, meaning that it should be leaving the account at some point during the month it came in, so just because the account balance may exceed $2,000.00 at some point during the month is not a problem – it is the end of the month that counts.  If the Medicaid recipient’s account happens to build up to the point that it exceeds $2,000.00 even after payment of the PML or transfer to the at-home spouse, some of that money should be spent of the personal needs of the recipient to bring the balance back below $2,000.00  Failure to keep the person’s “reserve reduced” could result in termination of benefits.

Finally, Medicaid conducts annual reviews of each of its recipients.  These reviews are conducted via mail, and involve reaffirming the person’s eligibility, providing any updates needed, and providing copies of bank statements. These reviews must be completed and returned, or coverage may be terminated.

As outlined above, Medicaid approval does not mean an end to paperwork or responsibility.  If you have questions about approval or ongoing eligibility, please don’t hesitate to contact us.