savings bonds in probate

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savings bonds in probate

Postby Striving » Thu May 02, 2013 9:11 am

Hello,

I am the executor of my late aunt's estate, and I have discovered that she owned a significant amount of EE savings bonds issued between 1983 and 1999 (yes, I know that some of these bonds are no longer earning interest or soon will be). Further, the beneficiaries listed on the bonds are deceased. My understanding is that these bonds will pass into probate. The only beneficiaries of the estate are my sibling and myself, and we will inherit equally the remaining assets.

A few questions:

1. Is there are a way for me to verify whether my aunt went through the process of changing the PoD beneficiaries of her savings bonds? Or does this process require returning the original bonds and receiving physical replacements?

2. Once savings bonds pass into probate, must the estate claim as income the accrued interest up to the month of my aunt's death? Even if the bonds are not cashed in?

3. Am I correct to assume that I, as the executor, have the authority to transfer ownership of the bonds to the beneficiaries (however we ultimately decide to split them)?

4. If I can indeed transfer ownership of some portion of these bonds to myself, do you think the best move is to hold them for the full 30 years given the relatively high safe rate of return (it looks like the older ones have a nice return).

Thanks for any information you can give me. I have been searching online (and on bogleheads) for answers to my questions, but I have not been able to find satisfactory answers.
Last edited by Striving on Thu May 02, 2013 10:09 am, edited 1 time in total.
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Re: savings bonds in probate

Postby bsteiner » Thu May 02, 2013 9:50 am

Striving wrote:...
I am the executor of my late aunt's estate, and I have discovered that she owned a significant amount of EE savings bonds issued between 1983 and 1999 (yes, I know that some of these bonds are no longer earning interest or soon will be). Further, the beneficiaries listed on the bonds are deceased. My understanding is that these bonds will pass into probate. The only beneficiaries of the estate are my sibling and myself, and we will inherent equally the remaining assets.
...
2. Once savings bonds pass into probate, must the estate claim as income the accrued interest up to the month of my aunt's death? Even if the bonds are not cashed in? ...


You have several choices regarding the bonds. You can accrue on your aunt's final income tax return the interest through her death. We often do that where the decedent was in a low income tax bracket in the year of death, or where we want to get an estate tax deduction for the income tax on the decedent's final return. Or the estate can accrue the interest.

The estate can either cash in the bonds or distribute them to the beneficiaries.

The lawyer handling the estate can give you more details regarding your choices regarding the bonds.
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Re: savings bonds in probate

Postby Dulocracy » Thu May 02, 2013 11:08 am

Striving wrote:2. Once savings bonds pass into probate, must the estate claim as income the accrued interest up to the month of my aunt's death? Even if the bonds are not cashed in?

3. Am I correct to assume that I, as the executor, have the authority to transfer ownership of the bonds to the beneficiaries (however we ultimately decide to split them)?

4. If I can indeed transfer ownership of some portion of these bonds to myself, do you think the best move is to hold them for the full 30 years given the relatively high safe rate of return (it looks like the older ones have a nice return).



2: Speak to a CPA. Not being one, I can not answer this question. I will tell you that for probate matters, a CPA can help you identify ways to transfer assets with minimal taxes. They are more than worth their price.

3. Yes.

4. After discussing the impact of taxes with a CPA, I see no reason not to hold onto a bond with a good rate of return. While taxes may not be a reason to act on a short term basis, not paying taxes on 28 years of interest may outweigh another 2 years of interest.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: savings bonds in probate

Postby Striving » Thu May 02, 2013 5:49 pm

bsteiner wrote:
Striving wrote:...
I am the executor of my late aunt's estate, and I have discovered that she owned a significant amount of EE savings bonds issued between 1983 and 1999 (yes, I know that some of these bonds are no longer earning interest or soon will be). Further, the beneficiaries listed on the bonds are deceased. My understanding is that these bonds will pass into probate. The only beneficiaries of the estate are my sibling and myself, and we will inherent equally the remaining assets.
...
2. Once savings bonds pass into probate, must the estate claim as income the accrued interest up to the month of my aunt's death? Even if the bonds are not cashed in? ...


You have several choices regarding the bonds. You can accrue on your aunt's final income tax return the interest through her death. We often do that where the decedent was in a low income tax bracket in the year of death, or where we want to get an estate tax deduction for the income tax on the decedent's final return. Or the estate can accrue the interest.

The estate can either cash in the bonds or distribute them to the beneficiaries.

The lawyer handling the estate can give you more details regarding your choices regarding the bonds.


Thanks for your suggestion. I never thought about using her final tax return to absorb the interest income from the savings bonds. She will indeed be in a low tax bracket since she died in March and had only taken one quarterly withdrawal from her IRA. So interest income up to her death can be claimed on her final return without cashing in the bonds, and then the person who inherits the retitled bonds owes income tax only on the interest accrued after her passing?

Of course, I will discuss anything I ultimately do with both my attorney and my aunt's accountant. I just wanted to get some ideas before meeting with both of them tomorrow.
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Re: savings bonds in probate

Postby Striving » Thu May 02, 2013 5:59 pm

Dulocracy wrote:
Striving wrote:2. Once savings bonds pass into probate, must the estate claim as income the accrued interest up to the month of my aunt's death? Even if the bonds are not cashed in?

3. Am I correct to assume that I, as the executor, have the authority to transfer ownership of the bonds to the beneficiaries (however we ultimately decide to split them)?

4. If I can indeed transfer ownership of some portion of these bonds to myself, do you think the best move is to hold them for the full 30 years given the relatively high safe rate of return (it looks like the older ones have a nice return).


2: Speak to a CPA. Not being one, I can not answer this question. I will tell you that for probate matters, a CPA can help you identify ways to transfer assets with minimal taxes. They are more than worth their price.

3. Yes.

4. After discussing the impact of taxes with a CPA, I see no reason not to hold onto a bond with a good rate of return. While taxes may not be a reason to act on a short term basis, not paying taxes on 28 years of interest may outweigh another 2 years of interest.


Thanks for your responses. Indeed, I will speak with a CPA (and attorney). My questions were an attempt to educate myself on this matter before I meet (separately) with both my (aunt's) CPA and my attorney tomorrow. The meeting with the CPA should be especially fund since she was also my aunt's "financial adviser" and I am sure I will be getting a hard sell to leave her IRA under management at her firm...
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Re: savings bonds in probate

Postby bsteiner » Thu May 02, 2013 10:22 pm

Striving wrote:... I never thought about using her final tax return to absorb the interest income from the savings bonds. She will indeed be in a low tax bracket since she died in March and had only taken one quarterly withdrawal from her IRA. So interest income up to her death can be claimed on her final return without cashing in the bonds, and then the person who inherits the retitled bonds owes income tax only on the interest accrued after her passing?

Of course, I will discuss anything I ultimately do with both my attorney and my aunt's accountant. I just wanted to get some ideas before meeting with both of them tomorrow.


Correct.

Once the lawyer knows that your aunt had savings bonds, and that she didn't have much income this year, he might recommend this.

Alternatively, since you can deduct the estate's administration expenses either on the estate tax return or on the estate's income tax return, if the estate is too small to pay Federal estate tax, the lawyer might recommend accruing the income on the estate's income tax return, where you might be able to offset it by the deduction for administration expenses.

Since the lawyer will have the details, he/she should be able to recommend the best approach.
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