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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10143
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My mother passed away in July, with credit card bills around

Customer Question

My mother passed away in July, with credit card bills around $25,000. for me to handle. I'm going to cash in her EE and HH bonds that I am listed as co-owner of to pay off these bills. how do I not get taxed to death for this?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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First although what you're doing here might seem commendable, unless you co-signed the debt, you are not responsible for this.

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Now if there were things in her probate estate that were left via will, then those assets (income from assets) whoulc be used because her ESTATE does owe the money.

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BUT with credit card debt ... unsecured debt, most of the time if the debt is more that what's in the estate (beneficiary designations pass outside probate) the credit card company is out of luck (and has this built into their underwriting systems and business models)

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Expert:  Lane replied 1 year ago.

Here's an excellent article on this ... and there are many:

http://www.bankrate.com/finance/debt/death-inherits-credit-card-debt.aspx

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The only real exceptions to ONLY the estate owing money NOT beneficiaries are the following:

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  • Joint Cardholders (but If you're only an authorized user, you're not liable when the cardholder dies)
  • Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble and deem you as a debtor when you weren't before
  • Finally, That doesn't mean the credit card company won't try to recoup the debt from family members, so don't fall for it if you know you're not liable
Expert:  Lane replied 1 year ago.

P.S.

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The regular interest that HH Bonds earn every six months must be reported on the Federal income tax return for the year in which the interest is paid. By January 31 of each year, treasury sends the bond owner an IRS 1099-INT form showing the interest paid in the previous year.

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SO unless there was deferred interest on the HH's there may not be much tax to pay there anyway (IF you still feel the need to do this)

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See this from Treasury:

How do I know if my HH Bond has deferred interest?

The amount of the deferred interest is included in the face amount of the HH Bond and is shown in a tax-deferral legend on the front of the bond.

If the exchange included more than one HH Bond, the amount of the deferred interest was divided proportionately among the HH Bonds.

Expert:  Lane replied 1 year ago.

And on the EE bonds, unless she elected to pay along the way WILL create taxation of the interest (UNLESS you have a way to use toward higher education)

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See this from treasury:

When must I report the interest on my tax form?

You have a choice. You can

  • report the interest every year
  • put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
    • you redeem (cash in) the bond and receive what the bond is worth, including the interest, or
    • you give up ownership of the bond and the bond is reissued, or
    • the bonds stops earning interest because it has reached final maturity
Expert:  Lane replied 1 year ago.

Let me know if you have questions

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Hope this has helped

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Lane

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