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Sooozi: I just remembered: Many states require a Notice to Debtors and Creditors to be published in the local newspaper or in a Court newspaper or both. These ads ususally run for three-to-six weeks, giving the name, address and date of death of the decedent. Many of these newspapers can be found in a special box on the courthouse steps ( free), for all to read.
I'm sorry that you did not know all this when you took it upon yourself to pay your mother's bills without seeking Counsel.
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Sooozi: Please don't confuse "merchants" with credit card companies which are banks. You have asked for an explanation of how it works. Here's how it works: When a loved one dies, hopefully he/she has appointed an executor to handle his/her estate which includes payments of outstanding bills, among many other duties. If there is no executor, the court will appoint one. ( You don't want this to happen). The executor then trots down to the county courthouse and either makes an appointment with the clerk....not to be confused with "Clerk of the Court", or waits on line to file 1) an Exemption. 2) Notice to Debtors and Creditors. All bills, ( including merchants, banks, personal bills, credit card companies, etc. ) are given to the clerk with account numbers and addresses including a pre-stamped envelopes for all. Then the clerk sends out these Notices to all Creditors. A form letter from the Court is enclosed with these notices, with full instructions of what to do, and how to do it. They have approximately 90 days to answer yea or nay. If they do not answer within the required time, their bill or account is considered untimely and does not have to be paid. This is not a sneaky operation. It's business. No one needs to sue if they play by the rules. Ninety days, or one hundred and twenty days is plenty of time for a creditor, be it a credit card company ( a bank) or a store, or a merchant to acknowledge the bill and ask for payment. Do not feel sorry for these merchants. Most are insured against losses. They collect from their own insurance company if they do not collect from the estate.
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N1K2R3 your answer of not paying credit cards and other debts until response time and/or being sued is confusing me.

I thought my mother bought things and owes money to shop keepers and other hard working business people. So I paid them. If we wait and they do not sue or file a claim, are those people supposed to just give the merchandise or service to our loved ones for free?

Can you please explain how that works? How do people get paid for the goods or services and if we don't pay them, who does?

I can understand not distributing the estate to the heirs before all bills are paid, and I can understand being sure a bill is legitimate, but to make merchants file a claim or sue for payment of goods and services doesn't seem right to me...
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Correction: It should read: Creditors who did not respond should be ignored.
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FelicityM: You are partially WRONG. It is the duty of the executor, executrix, or personal respresentative of a deceased person to: 1) File an Exemption of EstateTaxes. This is a brief statement showing that deceased estate is worth less than $5,000,000 (2012), or $1,000,000. (2013). 2) File a Notice To Debtors and Creditors at the County Courthouse where the deceased was domiciled. Creditors have 90 days to respond to the Courthouse in order to collect debts owed to them. Some counties require a 120-day response time and some only 60 days. NO BILLS SHOULD BE PAID UNTIL THE RESPONSE TIME HAS EXPIRED. Debtors who did not respond should be ignored. No debts should be paid by the executor unless directed to do so. Some wills prepared by lawyers for the deceased will direct the executor NOT TO PAY ANY CREDIT CARD BILLS, unless held jointly with another person, such as a spouse. Let them sue the estate, but they will not be able to collect. Distributions to beneficiaries should take place as soon a possible after the 90 day period has expired.
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I once had a list of things that had to be paid back from if a person used medical or medicaid . but I lost it . I think I saw on the list ( but am not sure) that if a person is left a life time use of a house but the house is left to some one else that medicaid can take that house any way .... is that true ? I would like to let my "significant other" ,stay in my house if I pass first but leave my house to my children .. will medicaid come after my house if I do this? tiffany13
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Yes the estate is supposed to pay the taxes, but it is the legal responsibility of the executor of the estate to pay all outstanding debts before settling the estate. If there are any funds remaining after death (savings, checking, CDs, house, etc) all debts must be settled before any distributions can be made to family etc. . At least in my state.
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I am always amazed at the type of question that asks if a deceased person must "pay taxes". There is only one way that the Internal Revenue Service may collect taxes on a deceased person, and that is to attempt to collect funds from the deceased person's estate. Exceptions: If the decedent previously filed Returns that used the filing status of Married Filing Jointly, then the remaining spouse is responsible for payment of any taxes due....for the year of death only....to be paid by April 15th of the following year. This has nothing to do with Social Security checks, Pensions, IRA's ( unless it's an Inherited IRA).
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My mom passed away on the 31st. Her pension check was paid on the 1st of the next month and again on the 1st of the following month, but both of those checks were "clawed back" out of her checking account. Also, the same for Social Security. It was paid and then removed from her account automatically.

It was important to keep track of the fact that her account balance would be automatically reduced. Also, not a day more in her case. She was paid through the 31st and then all payments stopped, even though we have to keep the lights on and the house warm, so the pipes don't freeze while we sell the house, and the property taxes paid, etc. etc.

It is so important to think carefully and plan a comfortable cushion for the expenses that will happen even after death.
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Income Tax? If the person was allive even one day in a year, taxes will have to be filed for that year (the next year).
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Yes, felicitym, good point to bring up! Also, pension checks. If the monthly check arrived, let's say, on the 1st and the person dies the next day, they might owe back the remaining days of the month. I say "might" because it would depend upon whether the check is for the month passed or the month ahead (I think pensions are typically paid for the coming month). Especially if a parent has left very little money, be careful not to spend anything that has to be given back (if it would be a burden to return it).
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Another point is that the last pension and/or Social Security check may have to be returned, depending on when the the person dies. Before my father passed away, he left explicit instructions on what needed to be done, step by step, including paying his taxes. From informing SS of his death, getting certified copies of death certificates, to letting us know that he wanted to be cremated. He told us what savings accts etc that he had, their acct numbers, and even the combination to his safe. Everything was laid out so clearly, that we weren't stressed about what to do next or what his wishes were. We had more time to grieve with each other and remember him well. It was such a huge burden off my shoulders that I have done the same thing for my son. All that info is now tucked inside my will --in the same safe I found my father's info and will. It's one of the greatest gifts you can leave your family.
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GrandpaHiker, Besides the fact that I love your name on this site, I also appreciate the way you answered this question. I would give you 5 thumbs up if allowed! Thank you for sharing the resource and the first paragraph. Great answer!!

Handling this now for my dear mom who passed away several months ago. It is so important for caregivers to help the ones they care for to understand that the tax man has the last word and how to be accountable for that so others are not left with a bundle of challenges.

I'm also learning how to be accountable for myself, so my grown children will not be burdened with my 'stuff' after I'm gone. It starts now... we should all know the many complicated and ever changing answers to this question.
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Thanks ejunicorn...I was wrong in one sense and I didn't know it. But like you said, if money or property is in a trust, then taxes will be paid.
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"Death and taxes may be equally inevitable, but the taxman demands the last word. Death does not excuse a final accounting with the IRS. In fact, taxes can further complicate the lives of survivors. Depending on when the death occurred, federal estate taxes may be due, and state inheritance taxes could come into play as well. Our focus here will be on federal income taxes."
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that answer is no, your estate might but the deceased person does not
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I think the answer is yes. You owe property taxes unless or until a property is sold.
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