Originally published February 18, 2019
I think I have found that spot in my professional life that I can’t do well or have yet to develop the skills to manage well. Maybe because it is less professional and more personal. Consequently, it is a good thing I have run out of near relatives so I can avoid this particular pitfall in the future. My sore spot is tax issues relevant to an estate and noncollectable debt.
Now, I must tell you that I have handled the accounting side of several estates, and I did just fine, in some cases exceeding expectations. Way back in the away-time when I was first starting out as a bookkeeper/accountant, I was called on to handle two very sensitive estates. In one case my employer’s son died from a brain tumor. He asked me one afternoon if I would meet him at his son’s office the following weekend and help him with a few things. The day went by in companionable silence and we worked through the files sorting out what had to be paid and arranged information for attorneys and accountants who would close out the estate. I was very close to the family and I genuinely felt the loss. At the end of the day he thanked me. He told me that he knew I had probably figured out that it was not my help he needed so much as he needed the company. He let me know how much he appreciated the professionalism, the help, and the quiet support.
Not too long afterword (memory fails on these dates), my employer was diagnosed with Lew Gehrig’s Disease. His prognosis was not optimistic. I was one of three people that knew that his focus had changed from building and maintaining, to preserving and estate planning. For six months he, his son-in-law, and myself, worked diligently with legal and accounting professionals to work out the best way to preserve his estate for the future. I remember vividly when I took his last tax return to his house to gather his and his wife’s signatures that he looked me directly in the eye and asked me if that was all. I replied that to the best of my knowledge, yes. Within 24 hours he was in the hospital in a coma and we lost him soon after. Again, I spent a quiet afternoon going through a desk and personal files to help the family organize and respond.
I have been involved in other estates. Remainders of pieces of family that were close to people I cared about. Always, I felt the greatest gift I could give was my background and the willingness to find things out, to help make decisions, to make sure nothing fell through the cracks.
Then, I became a primary. Dealing with my husband’s, and now my mother’s estate I have discovered I have zero tolerance when it comes to incompetence. Actually, regardless of the situation I am not overly patient with sloppy work when it comes to other people’s money. I’m lucky, truly. With my husband I did hire an estate attorney to give me the lay of the land so that I knew what was needed and expected. I could then figure out how to handle any outstanding issues knowing I had backup if needed. And still, I found myself wanting to climb through the phone and strangle many of the people I had to deal with. Now, my mum. This time I had a professional I could speak with that is working on a file for a friend/client of mine. I offered to pay, but no, this was one commiserating accountant to another. I shall treasure that conversation for a very long time.
So, what is the issue that so bothers me? When a person dies and there is nothing in their estate to cover debt (such as credit cards when they are the primary debtor) the debt is usually written off. Now, companies to which such money is owed can take their sweet time making sure that there were not large sums of money hidden under grandma’s mattress, or that there isn’t some other asset tucked away to which the estate has a financial claim. But, in the end, the debt is declared noncollectable.
At some point, whenever “they” get around to it, the company might then issue something called a 1099-C, Cancellation of Debt. These things are evil incarnate. First of all, conservative estimates indicate that nearly 70% of them have some type of error. These errors can include such things as using the wrong taxpayer ID (or none), not reporting the interest portion of the debt, using the wrong date for the “identifiable event,” and several other bits of information. Now, cancellation of debt is a taxable event. There are limitations, such as interest that would have been deductible on a business return but was not taken.
The point is, there is a form out there in the IRS databanks assigning some value as income to a taxpayer. If you have access to accounting help (not a drive by shop), you will get assistance on how to address the reported income from your side, or to follow up on a corrected form. If, for instance, you went bankrupt, that date of event can be crucial in answering the question of whether taxes are due or not. Let’s say you have recovered financially, and the date is set after the date of bankruptcy. That balance is now taxable unless you can get the financial institution to change the date to the date of insolvency. Anybody have a headache yet?
As mentioned above, I have zero tolerance for incompetency in some areas. I have to think about the number of people out there who do not have access to the things I do, who get these documents and have no clue of what to do with them and end up paying someone something when they don’t owe it. Sometimes at great personal sacrifice. And I really don’t like having to work double time to fix someone else’s lack of focus (lack of knowledge is okay, uncaring incompetence not so much). I get that we do not want people of means to declare financial ruin and skip fancy free from using other people’s money to support a life style. The problem is that the “fix” does far more damage to those who can least afford a viable and legal defense.
I just have to say that I am blessed with people who bring me back from melt down and offer solid advice. If you know someone who is dealing with an estate that is insolvent with not enough assets to cover the debt, it will help if you find an accountant to walk you through. Some senior centers have access to professionals willing to donate time or provide advice at lower rates. Remember always that you have the right to use reasonable resources to care for last expenses such as burial and legal and accounting services (unless of course it is the final Social Security check). Just don’t panic, find someone who has been there to help you walk through it. I shall go try to take my own advice and be thankful that all the folks left in my life are people that can depend on me to be more level headed.