Pay Dirt

My Relative Made a Catastrophic Financial Decision. Is He Beyond Help?

He’s terrified of calling the IRS, and I can’t blame him.

A woman and a man pore over some papers.
Photo illustration by Slate. Photo by Getty Images Plus and Spoon Graphics.

Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here(It’s anonymous!)

Dear Pay Dirt,

I’ve been helping a family member sort through some big issues (substance abuse, etc.). He makes good money but wastes most of it—he lives paycheck to paycheck and hasn’t set aside anything for retirement, emergency savings, or basically anything else. Worse, in one of our recent conversations, he mentioned that he hasn’t paid any taxes in about a decade.

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Do you have any advice for how he can get caught up on what I’m guessing is a boatload of back taxes, plus penalties? I’m assuming step one is to make sure he has all his W-2s for those years (he says he has these), and then … what? Contact the IRS directly and throw himself at their mercy? Is there a limit on how far back he’ll have to pay? Should he do this through an accountant or try to work with the IRS directly? Also, he currently lives in a no–income tax state, but he’s lived in other places that do have a state income tax, so I’m assuming he’ll need to sort through those back taxes as well (right?).

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—Not My Mess, but I’m Helping

Dear Not My Mess,

The IRS gets a bad rap, but they’re very easy to work with and staffed by a lot of very friendly people, who understand that a lot of callers who need to be communicating with them are also terrified of them. Your family member probably has a lot of anxiety about this is and is reluctant to deal with it, but you should assure them that the IRS has every incentive to work with him on a plan to get caught up on his taxes. They’re not going to yell at him about financial irresponsibility; they’re going to help him figure it out.

Step one is, yes, to gather whatever documentation he has of his income over the last decade. If he’s missing anything, he can request his transcripts directly from the IRS for free, and they’ll send him documentation of what’s been reported.

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Depending on how complicated his taxes are, he may be able to do all of this himself, but if fear is the primary reason he’s putting off dealing with it, it’s probably worth hiring an accountant to make sure it’s all done correctly—and to get a little supportive hand-holding for both of you. Even very basic filing rules are sometimes hard for people to understand because we have a very convoluted tax code that’s even hard for professionals to navigate sometimes.

If your family member is employed, they’ll assess what he owes and work with him on a repayment plan, likely based on whatever his current income is. If he’s still reluctant to get started, emphasize to him how much better he’ll feel when he doesn’t have to worry about this on top of the other issues he’s dealing with.

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Dear Pay Dirt,

Thirty-five-plus years ago, a grandparent passed away. They had established a living trust in which income generated from an apartment building they owned would go to provide for their living children and grandchildren. The executor of the trust is a sibling of my parent, and there have been no distributions made to any of the beneficiaries, ever (that I’m aware of). The executor has been living in the building along with their children for the last 35 years.

I have reached middle age without any need for this income, and I really don’t care that my parent’s sibling has been the only beneficiary. The property, however, is in a desirable area of a high-priced city (my guess is the land alone would be worth well over a million dollars), and I don’t want to see it sold without myself, my parent, aunts/uncles, and siblings/cousins receiving their share.

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I don’t really understand the legalities of the will, but from what I understand, it was never probated. My father would be heartbroken if he knew I had made any effort to interfere in this, and out of respect for him, I am not.

I would like advice on three questions, however. First: Is there any scenario, short of fraud, where the executor could sell the property and not distribute the benefits from the sale to the heirs? Second: If the executor does not keep up on their obligations (such as property taxes), could the heirs be liable to pay those obligations? Third: If the executor does not keep up on their obligations, could the property be seized by the city/state and the heirs lose any claim to it?

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—That Building’s on My Mind

Dear On My Mind,

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In most cases, beneficiaries can have the executor of a trust removed if they’re not fulfilling their fiduciary duties or failing to make required distributions, but the specifics of your case and its potential liabilities are a little beyond my expertise, so I consulted estate lawyer Joshua Rubenstein, at Katten Muchin Rosenman. He tells me that the apartment likely passed into your relative’s hands under the living trust (so the unprobated will isn’t relevant here, unless the apartment specifics are laid out there) and that you really need to see a copy of it to answer your questions.

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“Odds are it says that income can be paid to the beneficiaries in the discretion of the trustee and on termination of the trust (whenever that is), the trust assets pass to issue per stirpes [that is, in a linear fashion according to the family’s lines of descent], or in some other relatively equal fashion, but that may not be the case,” Rubenstein says. “Regardless, it sounds like a conflict of interest for the trustee to use his powers to benefit only himself. If you cared to make an issue of it, you could bring a compulsory accounting proceeding and make the trustee account for his conduct to the court.”

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But, he adds, there’s no way the proceeds from a sale can be distributed except as the trust dictates. “If the apartment passed under the trust, it does not belong to the heirs (or to the trust beneficiaries, for that matter), who would have no responsibility if the trustee failed to pay property taxes or other trust expenses. It is hard to imagine that the trustee would fail to do so if he and his family are living there, but if he did, creditors could force a sale of the property in order to receive the money they are owed.”

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In any case, you won’t know for sure whether any of this is an issue until you see a copy of the trust.

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Dear Pay Dirt,

I am an early-career professional working in an amazing but notoriously badly paid industry. Since I specialized in a niche area, I am lucky to be earning a much higher salary than the industry standard. However, wages seem to plateau at this stage, and I need a higher income in the next five to 10 years to be accepted for a mortgage.

If I were to move up in my current company, I would have to take a high-stress role for hardly any extra money, but next-level jobs at other companies are advertising at $8,000 less than my current salary! Do I stay in my current role for the next five years to build up savings, but risk hindering my professional development? Or is there a way I can move to another company but negotiate a significantly higher salary, based on my current trajectory?

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—Beginners’ Luck Has Me Stuck

Dear Beginners’ Luck,

I think it’s worth it to interview for roles at other companies and see if you can negotiate a better salary. It’s rare that a company would make an offer that they know is significantly below what you’re making now if they genuinely want to hire you. It’s also good to see what your market value is occasionally, even if you have no intention of leaving. It’ll help you understand what you should be making in your current job.

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Ultimately, the decision you make is a function of your personal preferences and how much you value home ownership or don’t. Not everyone cares that much about owning a home, and some people only care about career advancement because they want to be homeowners. Maybe you want both on some level, but you need to decide which one is more important if you have to prioritize one or the other.

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But there’s no reason not to check out opportunities in your industry that might pay better if they know what your salary is now. At least then you know, concretely, what your options are, instead of guessing.

Dear Pay Dirt,

Decades ago, I had to stop pursuing my Ph.D. I tried to keep up with my student loan payments on debt from that time, but the payment program I was in was discontinued when I missed a payment in order to pay to have an abscessed tooth addressed. After that, I was not able to make the higher payments, and the government started garnishing my wages.

Now, my original $60,000 in debt has ballooned to over three-quarters of a million dollars. My per diem for interest is between $800 and $900. What I am garnished each month doesn’t even cover a day’s worth of interest. I could never marry, hold any kind of license, or buy a house. When the garnishment resumes in May, I will not be able to afford my now higher rent, especially with a new job I just started at lower pay.

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I’ve tried multiple times to get into an income-driven payment plan but have never been successful for reasons I don’t understand. I’m about to turn 60 and am exhausted. My entire existence is feeding my student loan beast. Is there any recourse for me? I am losing all hope.

—Utterly Consumed by Debt

Dear Consumed,

I think you’re probably a poster child for student loan cancellation as policy. No one should be punished for a lifetime for taking on debt at a young age, especially for educational purposes.

Your options here depend on what kind of loans we’re talking about. Federal loans are difficult to discharge in bankruptcy, but that might be one option if your loans are private. In that case, you would need to gather proof that the amount of debt you have constitutes an undue hardship. That means documenting your expenses and your income and any additional debt you have. Bankruptcy is not ideal, of course, but it is designed to give people a fresh start in cases like these.

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Many courts use a guideline called the Brunner test to determine whether your situation constitutes an undue hardship, and the criteria are that you’re unable to maintain a minimum standard of living, you’ve made good faith effort to repay the loans before, and it appears that your situation isn’t temporary—meaning, for example, your income is expected to stay the same. Your age probably works in your favor here. Many personal bankruptcy lawyers have worked with student debt situations before, and it’s worth talking to one to see what your options are.

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It’s worth noting that even the American Bar Association thinks “undue hardship” is a ridiculously high bar, and that loans should be more easily discharged in cases like yours. There are also proposals moving through Congress to make it easier and to provide pathways to loan forgiveness after a set waiting period. Student debt has been financially devastating for a lot of people, and you are not alone.

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—Elizabeth

More Advice from Slate

My significant other died six months ago from a long-term illness. In our 25 years together, we had a 25-year-old daughter and a 21-year-old son. During that time, he had an illegitimate son who is also 21 years old, just a few months older than our son. I didn’t even meet this son until he was 15. After my significant other’s death, he began living with me and my son. About a month ago, I developed a sexual relationship with my significant other’s son. My children have now disowned me, calling the relationship disgusting, a poor decision, and inappropriate. Do you think my children are correct in their perception of this relationship, and if so, for what reasons?

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