Winter, 1995-96
I would like to wish everyone the very best of holiday seasons. My office will be "closed" from the period December 23, 1995 through January 1, 1996. Nevertheless, I can be reached, basically, 24 hours a day. My office number is connected to an answering service in contact with me at all times. Instructions for how to reach me in an emergency are contained on the message. My cellular voice mail is linked to a paging service as well. Please note that we have installed an additional dedicated line for fax service and that number has changed. The new fax number is (909) 243-2792.
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Generally speaking, taxes, spousal or child support, debts arising out of willful or malicious misconduct by the debtor, liabilities for injury or death from driving while intoxicated, student loans, and, criminal fines or penalties, forefeitures will not be discharged. However, the Bankruptcy Code only specifies taxes that are excepted from discharge. Therefore, for instance, income taxes, unless secured, are not excepted from discharge as a general prohibition. They will be dischargeable if:
1/ A return has been filed;
2/ If a return has been filed, an assessment was not based on fraud;
3/ If filed late, the return was filed two years or more before the bankruptcy petition;
4/ The tax return, with extensions, was due three or more years before filing of the bankruptcy petition; and,
5/ Tax liability was assessed more than 240 days before filing of a petittion.
All of the above must be satisfied.
Secured tax liability is treated differently and with priority. Even if tax liability is otherwise dischargeable, a federal tax lien survives to the extent that any property, even exempt property, is available to secure the tax debt.
If contemplating seeking Bankruptcy, and you believe you may have a shot at lumping federal income tax obligations in with your other creditors, you must accumulate the following information: 1/ the due date of the tax return, including extensions, which are in question; 2/ the date of filing of the return, if in fact filed; 3/ the date of "assessment" of tax liability; and, 4/ Whether a notice of lien has been filed resulting in a "secured" claim.
Facts: An 18 year old telemarketer was using the restroom at an Indio Jack In the Box. Outside were two employees waiting to enter who made a number of remarks, among which included the statement "It sures stinks out here. Get the spray." One of the employees proceeded to spray Wizard air freshener under the door. The injured party then claimed to have slipped on the accumulated spray, injuring her back.
Defense: Jack In the Box admitted liability, but claimed the plaintiff was not injured. The two employees were reprimanded, but not terminated.
Injuries: Plaintiff alleged two ruptured discs, for which surgery was recommended.
Verdict: The jury awarded the plaintiff $930,000, but the Judge, citing that the need for "two of the surgeries" was speculative, subsequently reduced the verdict to $573,517.
Facts: A 31 year old woman was allegedly "peeped" in a Broadway Store dressing room near San Diego. A coverup by management of the incident was also alleged. Plaintiff claims the manager contacted her employer supervisor urging the charges be dropped. After suit was filed, Broadway requested the resignations of all male security personnel because of "their knowledge" concerning the existence of dressing room "peepholes".
Verdict: The jury awarded a combined judgment of $1.12 million.
Comment: The first verdict is actually quite mild in size given the precipitating conduct, age, and apparent injuries. The second verdict is quite large given the nature of the nature of the nondisabling and transitory injury. As a general observation, the experts who follow these things closely, have noted some definite trends are represented by the above verdicts. Where the conduct of the enterprise and/or its employees tends to be negligent, less outrageous, or more of an ommission, there appears to be greater and greater reluctance of juries to sympathize with the injured party. In such cases, you will note more often a willingness of the Judge to "intervene" in complicated post verdict procedures. Where the conduct consists of gross negligence, intended or even criminal behavior, verdict response is quite volatile---often concluding with "scorched earth" and quite punitive sanctioning of the employer. These are definitely trends worth following.
The Association of American Law Schools recently noted a near 7% decline in law school applications for the 1994 academic year concluded in 1995. Nationwide, applications law school have declined by even greater percentages (in some areas by as much as 15%) for the 1995 academic year which concludes in 1996. The falloff is so great that many schools outside California are actively recruiting and promoting. Previously, for California, this newsletter reported increases across the board, some attributing the aberration (especially in light of the California economy) to the affect of the O. J. Simpson trial locally. The point here is that if anyone is considering a legal education, one may wish to consider a non-California school.
One of the most frequent inquiries I receive concerns the long term or permanently disabled person, usually elderly, and the legality of protecting assets---and shifting the cost of that longterm care to Medi-Cal. I will be dealing with the subject more in future newsletters as I acquire more updated information in conjunction with offering of trust formation services. For now, let’s start with some basics, and concepts that have helped me understand the problem as well as the potential response.
Medi-Cal is the California state name for the federal Medicaid program. It receives federal funding and some state. It is available to qualifying persons who are aged, blind, or disabled. It is one of few government programs nationwide that pays the ongoing costs of nursing care for persons who qualify for its benefits in terms of the applicant’s status, assets and income.
First, Medicare will cover only the first 120 days of nursing home care. Therefore, generally the elderly feel vulnerable to the prospect of long term nursing care (younger people with active health and medical insurance usually have coverage for the care if it is the result of a covered event) because "private" insurance is not available, and nursing home insurance is usually suspect , limited or expensive as a financial product. The state projects or values such care at around $2,400 per month. Second, qualification for MediCal is prohibitive. I will focus on the "asset" requirements which is the most restrictive. These rules are found in the Welfare and Institutions Code. In a nutshell, the only exemptions from this consideration for benefits are: a car, a maximum of $62,000 worth of property (combined for spouses), and a home.
In estate planning, this inevitably generates the debate over protection or "spending down" in order to qualify. MediCal, upon the death of the ill or convalescent spouse, will then assert a "lien" against the house for whatever Medi-Cal benefits had been paid--preserving the state’s right to seek reimbursement. Since Medi-Cal is now totally a creature of federal law (MediCare Catastrophic Coverage Act of 1988), which is complicated by implementing rules that change frequently, I will forego discussion in later newsletters of some of the possible legal responses being utilized or asserted to "avoid" this lien.
Other main areas of focus include "transfers" without consideration, and the kinds of devices used to plan around the rules such as annuities, gifts to children, special needs trusts, and revocable living trusts. Medi-Cal currently has a rule that transfers without consideration will disqualify an individual for Medi-Cal benefits and the period of ineligibility is determined by dividing the total value transferred by the state rate of average monthly cost of nursing home care ($2,432). A $20,000 excess transfer (beyond the $62,000 in assets allowed) would therefore result in 8.2 months of ineligibility under the 1990 regulations. The key in MediCal planning and asset preservation appears to be in satisfying the rules and regulations to the extent that assets are viewed as "unavailable" or only supplemental to the welfare and care of the people involved. I will be exploring this subject more in later newsletters.
My further updates will follow. With best regards, Gerald Spala December 15, 1995