Question about US Savings Bonds

Someone I know inherited some US Savings Bonds as a beneficiency after one of their parents died . They want to know if they can in turn name a beneficiency on the bonds they inherited since they do not wish to cash them in yet. There appears to be no information on this at the official government savings bond site. They simply tell you how to cash in bonds you inherited, but not if/how you can name a beneficary if you inherit bonds but wish to hold on to them. The reason this person wants to do this should be obvious. If they were to die accidentally the bonds wouldn't automatically go to anybody, but would be subject to probate, and all the problems associated with that awful process.

Yes, you can have the bonds reissued with a new beneficiary. There is a form available, for this purpose, and it's shipped free of charge. For the life of me, I can't remember the form's number. You will need the deceased's death certificate (with the embossed seal), if I remember correctly.

http://www.treasurydirect.gov/NC/FoRMSHome?FormType=SBF&site=indiv

Your friend might want to consider cashing them in, if the tax on the interest (interest earned up to the date of death) was paid by the deceased's estate. Your friend should have received notice from the estate, if that's the case. Were the bonds (principal and interest) included in the total value of the deceased's estate, for estate tax purposes? Want to be careful, when the IRS is involved!

oldgrandpajack said:

Your friend might want to consider cashing them in, if the tax on the interest (interest earned up to the date of death) was paid by the deceased's estate. Your friend should have received notice from the estate, if that's the case. Were the bonds (principal and interest) included in the total value of the deceased's estate, for estate tax purposes? Want to be careful, when the IRS is involved!

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The tax on the bond interest usually isn't paid until the bonds are cashed. Therefore, if my friend were to cash the bonds now they would be liable for taxes on all of the interest earned since they were bought. This is why he doesn't want to cash them in as of yet, but plans to when he retires in a few years, and is in a much lower tax bracket (10% instead of 28%). As far as I know, the deceased's estate wasn't valued enough to be subject to estate taxes.

I don't know about Savings Bonds, but upon death--many securities and real property get an "automatic" step up in valuation and the person inheriting the security/real property gets the "thing" at the new value and the estate never had to pay any taxes on the increase in valuation...

For example. XYZ stock is bought at $10. Then the person dies x years later (still owning the stock) and the value at time of death is $20.

The person inheriting the stock now has a starting value of $20 and if sold years later at the value of $30--there would only be a $10 increase to pay taxes on.

There is still the issue of the size of the estate and how much can be transfered tax free (has been changing year by year--so need to know the exact date of death). So--there still may have been estate taxes due (and paid)--but, as I understand it--is a different issue.

There is an increased value in the US Savings Bond (there are bond calculators where you input the CUISP# and you can get the current value) that may be the value for tax purposes.

They will need to check on this and make sure that they don't over pay their taxes. (again--I don't know if this applies to US Savings Bonds).

-Bill

You also need to check on the date of their maturity. They only pay interest up to a certain point and then stop accruing. It'd be a shame to lose out on 10-20 years of interest if they're already past that point.

kitelights said:

You also need to check on the date of their maturity. They only pay interest up to a certain point and then stop accruing. It'd be a shame to lose out on 10-20 years of interest if they're already past that point.

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They're paying interest until November 2020 even though they matured in 2002, so there is still plenty of time to cash them in. After maturity the interest went from about 6% to market rate (~3.5% last time I checked).

jtr1962 said:

The tax on the bond interest usually isn't paid until the bonds are cashed. Therefore, if my friend were to cash the bonds now they would be liable for taxes on all of the interest earned since they were bought. This is why he doesn't want to cash them in as of yet, but plans to when he retires in a few years, and is in a much lower tax bracket (10% instead of 28%). As far as I know, the deceased's estate wasn't valued enough to be subject to estate taxes.

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Guess I didn't explain myself clearly. The estate may have paid the income taxes on the acrued interest (up to the date of death). I personally experienced this very situation. If the taxes on the acrued interest were paid by the estate, your friend would have received notice from the estate. I cashed my bonds immediately, and used the notice from the estate when I filed my income tax return. Didn't owe the IRS anything at all.

jtr1962 said:

They're paying interest until November 2020 even though they matured in 2002, so there is still plenty of time to cash them in. After maturity the interest went from about 6% to market rate (~3.5% last time I checked).

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If they're only getting 3.5%, you could do better in a CD or another low/no-risk investment. I'm seeing savings accounts paying 4-4.75% right now.