insolvency

[Marie]

I'm doing a late return ( and one I was dreading, but..) Taxpayer has lots of credit card debt, medical bills (wife had cancer and died). Lots of credit card debt cancelled. He also has teacher retirement. How do I find out his interest in this retirement. I know they pay in, but depending on how it is set up, when you die, your heir only gets what is left of your initial investment. The retirement is a good thing as long as you stay alive. At point of cancellation, what is it worth if he dies the next day? Anyone know how to figure, or do we have to contact the state teacher's retirement group?

[kcjenkins]

You said it. You need to contact the plan administration if you need more info. Basically, tho, if there is no money he has access to other than his monthly payments, that is all you need to consider. Have you done an insolvency worksheet?

[Marie]

Yes, I am working on the insolvency worksheet. He had debt cancelled 5 different times, all pretty close to each other.

I think there is a death benefit on the retirement, though. His wife died later in the year, and he received some from the teacher retirement in her number. Is wife's death benefit an asset since the debt was cancelled before she died? Would his death benefit be an asset to him, too? It could have been simple if they actually had no money, but they did have some money in the bank, but the medical bills got overwhelming.

[kcjenkins]

The death benefit that comes from his death is not an asset since he can not get it. Nor was hers, until he actually got it. So if they were insolvent when the debt was cancelled, then the insolvency exception applies.