Inherited Savings Bonds

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bgaspard
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Inherited Savings Bonds

Post by bgaspard » Wed Sep 06, 2017 4:36 pm

My brother and I have inherited an estate from our parents valued at around 400K consisting of a home, cash, CDs, life insurance policies, and Savings Bonds. I have been appointed by a court in Pennsylvania as the executor. The will stipulates a 50:50 split between my brother and I. These bonds were in both my father and mothers names, both now deceased. Using the Savings Bond Wizard from the Department of the Treasury the bonds have a value of around 113K of which 90K is interest. All of the bonds have matured. If the interest is reported as income to the decedent it would bump him to the 28% federal tax bracket I'm guessing. There are no offsetting costs like medical to offset this income. We would take a similar hit if we were to redeem them this year and include the interest in our tax returns.

My husband is retired and I am due to retire at the end of this year so by next year we would be in the 15% tax bracket. If we had the bonds reissued in my name we could redeem the bonds in the next few years at the lower tax rate.

I guess my first question is will the Treasury even reissue savings bonds that have reached their maturity? And if they will reissue them do you see any flaws to my reasoning? Or are there other suggestions to soften the tax blow.

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FIREchief
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Re: Inherited Savings Bonds

Post by FIREchief » Wed Sep 06, 2017 4:43 pm

Do inherited US savings bonds receive a step up basis?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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HueyLD
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Re: Inherited Savings Bonds

Post by HueyLD » Wed Sep 06, 2017 4:46 pm

My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.

FactualFran
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Re: Inherited Savings Bonds

Post by FactualFran » Wed Sep 06, 2017 5:09 pm

HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.

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HueyLD
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Re: Inherited Savings Bonds

Post by HueyLD » Wed Sep 06, 2017 5:13 pm

FactualFran wrote:
Wed Sep 06, 2017 5:09 pm
HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.
You are correct. But it could be difficult if the bonds matured in a year prior the year of death.

Filing an amended return for a deceased person with a balance due can certainly be a challenge.

bgaspard
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Re: Inherited Savings Bonds

Post by bgaspard » Wed Sep 06, 2017 5:46 pm

There were 341 bonds stored away in a safe deposit box. The majority of them matured between 2011 and 2016. From a tax standpoint it probably would have been better had the interest been reported the years the bonds matured to spread the income out over those years. But no interest was paid on these bonds. Their other income during those years was pretty modest so the overall tax hit probably would have been less had the interest been reported versus redeeming the bonds now in aggregate.

I have their prior year tax returns. Would filing amended returns for those years be a viable option to reduce the tax burden? Sounds like a lot of work.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Wed Sep 06, 2017 6:34 pm

You really have no choice. That is the correct way to report the interest.
Gill

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FIREchief
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Re: Inherited Savings Bonds

Post by FIREchief » Wed Sep 06, 2017 6:36 pm

FactualFran wrote:
Wed Sep 06, 2017 5:09 pm
HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Grt2bOutdoors
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Re: Inherited Savings Bonds

Post by Grt2bOutdoors » Wed Sep 06, 2017 6:48 pm

FIREchief wrote:
Wed Sep 06, 2017 6:36 pm
FactualFran wrote:
Wed Sep 06, 2017 5:09 pm
HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
The bank that cashes the bonds will issue a 1099-INT form to the redeemer. In the case of the executor, it may be easier to remit the bonds to the Bureau of the Public Debt with the appropriate forms since the owner is deceased and the beneficiaries are staking claim on redemption proceeds.

My spouse owns a bond that matured and has not yet been presented for redemption, however we reported the total interest earned on the bond for the tax year following maturity. We will get a 1099-INT form and when/if IRS questions it, we will simply show them our income tax returns that were properly filed. The end.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Longdog
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Re: Inherited Savings Bonds

Post by Longdog » Wed Sep 06, 2017 6:48 pm

FIREchief wrote:
Wed Sep 06, 2017 6:36 pm
FactualFran wrote:
Wed Sep 06, 2017 5:09 pm
HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
IRS Publication 559 explains how to handle this.
Steve

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FIREchief
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Re: Inherited Savings Bonds

Post by FIREchief » Wed Sep 06, 2017 6:50 pm

Longdog wrote:
Wed Sep 06, 2017 6:48 pm
FIREchief wrote:
Wed Sep 06, 2017 6:36 pm
FactualFran wrote:
Wed Sep 06, 2017 5:09 pm
HueyLD wrote:
Wed Sep 06, 2017 4:46 pm
My first question is will the Treasury even reissue savings bonds that have reached their maturity?
No. Once they matured, the only option is to redeem the bonds.

Also no to basis step-up.
Also, the interest should have been reported on an income tax return for the year when the Savings Bonds matured.
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
IRS Publication 559 explains how to handle this.
Thanks. I was just curious. I no longer own any US Savings bonds and likely never will again.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

rgs92
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Re: Inherited Savings Bonds

Post by rgs92 » Wed Sep 06, 2017 6:51 pm

I offer sympathy for you because it seems like a very difficult task to deal with 340 paper bonds. Good luck to you.
I would first suggest taking photos of all of them (maybe 5 to 10 at a time) and storing these photos in a few separate cloud areas (like your email accounts) just to have records of the bond ID numbers.

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Peter Foley
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Re: Inherited Savings Bonds

Post by Peter Foley » Wed Sep 06, 2017 7:17 pm

Please clarify.

Are you saying that the bonds reached "final maturity?" That would mean that they are no longer earning interest and interest should have been reported by your parents in the year they reached final maturity. That seems to be what you are indicating in your post.

I think the Wizard would show that they are no longer earning interest - I have not tested this theory having always cashed mine in the year of final maturity or earlier.

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Steelersfan
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Re: Inherited Savings Bonds

Post by Steelersfan » Wed Sep 06, 2017 7:26 pm

Here's the help page on Treasury Direct on redeeming bonds, including paper ones:

https://www.treasurydirect.gov/indiv/re ... redeem.htm

bgaspard
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Re: Inherited Savings Bonds

Post by bgaspard » Wed Sep 06, 2017 8:03 pm

Peter Foley wrote:
Wed Sep 06, 2017 7:17 pm
Please clarify.

Are you saying that the bonds reached "final maturity?" That would mean that they are no longer earning interest and interest should have been reported by your parents in the year they reached final maturity. That seems to be what you are indicating in your post.

I think the Wizard would show that they are no longer earning interest - I have not tested this theory having always cashed mine in the year of final maturity or earlier.
The Savings Bond Wizard has a spreadsheet type format. The two right most columns include "Final Maturity Date" and a "Notes" column. The notes column for every bond has a "MA" entry which means the bond is MAtured and not earning interest. The dates are all for prior tax years with the exception of two which did mature 01/2017.

I can tell from the Wizard the interest amount that applies to each tax year. It sounds like what I need to do is file amended returns (I have all the old returns) for each of the affected years and include the interest from the Bonds that matured that year. Include payment for taxes owed (and penalties?) When the Bonds are actually redeemed the amended returns will offer proof that the taxes were paid?

bgaspard
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Re: Inherited Savings Bonds

Post by bgaspard » Wed Sep 06, 2017 8:11 pm

rgs92 wrote:
Wed Sep 06, 2017 6:51 pm
I offer sympathy for you because it seems like a very difficult task to deal with 340 paper bonds. Good luck to you.
I would first suggest taking photos of all of them (maybe 5 to 10 at a time) and storing these photos in a few separate cloud areas (like your email accounts) just to have records of the bond ID numbers.
Yes will differently take photos before mailing them in. Thanks.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Wed Sep 06, 2017 8:32 pm

Keep in mind the only returns you can amend are 2014 through 2016.
Gill

Jillian
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Re: Inherited Savings Bonds

Post by Jillian » Wed Sep 06, 2017 9:14 pm

Take pictures and document everything.

Also, it night make sense to cash them in a year when you have a lower income in order to be in a lower tax bracket.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Thu Sep 07, 2017 7:57 am

Jillian wrote:
Wed Sep 06, 2017 9:14 pm
Take pictures and document everything.

Also, it night make sense to cash them in a year when you have a lower income in order to be in a lower tax bracket.
That option is passed. The bonds have matured.
Gill

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HueyLD
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Re: Inherited Savings Bonds

Post by HueyLD » Thu Sep 07, 2017 11:36 am

Gill wrote:
Wed Sep 06, 2017 8:32 pm
Keep in mind the only returns you can amend are 2014 through 2016.
The three-year rule is for refund only. If a taxpayer wants to amend his/her returns to pay the government additional balance due plus interest and penalty, they are not going to refuse the money.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Thu Sep 07, 2017 11:49 am

HueyLD wrote:
Thu Sep 07, 2017 11:36 am
Gill wrote:
Wed Sep 06, 2017 8:32 pm
Keep in mind the only returns you can amend are 2014 through 2016.
The three-year rule is for refund only. If a taxpayer wants to amend his/her returns to pay the government additional balance due plus interest and penalty, they are not going to refuse the money.
Yes, I understand, but why would you when there is no chance of audit unless a substantial understatement?
Gill

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HueyLD
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Re: Inherited Savings Bonds

Post by HueyLD » Thu Sep 07, 2017 11:53 am

Audit is not a concern for the OP.

The OP wants to amend his parents prior returns to hopefully lower the income tax burden on the savings bonds.

IMO, it is a lot of work, considering the time and efforts, balance due plus interest and penalty for both federal and state.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Thu Sep 07, 2017 11:55 am

HueyLD wrote:
Thu Sep 07, 2017 11:53 am
Audit is not a concern for the OP.

The OP wants to amend his parents prior returns to hopefully lower the income tax burden on the savings bonds.

IMO, it is a lot of work, considering the time and efforts, balance due plus interest and penalty for both federal and state.
He should amend the prior returns because they were incorrect. The interest should have been reported in the years the bonds matured.

Gill

FactualFran
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Re: Inherited Savings Bonds

Post by FactualFran » Thu Sep 07, 2017 2:01 pm

FIREchief wrote:
Wed Sep 06, 2017 6:36 pm
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
Yes, the institution that cashes Savings Bonds will issue a Form 1099. The institution will also ask for the Social Security Number or Tax Identification Number to appear on the Form 1099.

Gill
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Re: Inherited Savings Bonds

Post by Gill » Thu Sep 07, 2017 3:21 pm

FactualFran wrote:
Thu Sep 07, 2017 2:01 pm
FIREchief wrote:
Wed Sep 06, 2017 6:36 pm
Interesting. So if the interest "should" have been reported in the year the bond matured, will the institution that cashes them now report interest income to the IRS?
Yes, the institution that cashes Savings Bonds will issue a Form 1099. The institution will also ask for the Social Security Number or Tax Identification Number to appear on the Form 1099.
That reporting doesn't change the taxpayer's obligation to report the maturing bonds in the correct year.
Gill

bgaspard
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Re: Inherited Savings Bonds

Post by bgaspard » Thu Sep 07, 2017 6:24 pm

HueyLD wrote:
Thu Sep 07, 2017 11:53 am
Audit is not a concern for the OP.

The OP wants to amend his parents prior returns to hopefully lower the income tax burden on the savings bonds.

IMO, it is a lot of work, considering the time and efforts, balance due plus interest and penalty for both federal and state.
Exactly. Original motivation was to try and legally limit my tax liability. But the effort might be considerable considering how many prior tax returns are affected.

Spirit Rider
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Re: Inherited Savings Bonds

Post by Spirit Rider » Thu Sep 07, 2017 8:36 pm

bgaspard wrote:
Thu Sep 07, 2017 6:24 pm
Exactly. Original motivation was to try and legally limit my tax liability. But the effort might be considerable considering how many prior tax returns are affected.
The extra interest and penalties may actually cost you more than you gain in the difference between marginal tax rates. However, as an executor, you are actually obligated to file the amended returns to report the interest that you know should have been reported whether that results in tax savings or additional tax costs.

Normally you would only be required to do so during the three (3) year SOL period (2014 - 2016 returns). However, if the failure to report any of the 2011 - 2014 bonds maturities constituted a >= 25% omission, they would be required because in that case the SOL is extended to six (6) years.

Now, I have never heard of the IRS going after any living taxpayers for late reporting of savings bond interest. In fact I would suggest that a significant quantity of savings bonds are reported in a year after maturity. The problem is that at least in my state and probably most states, the executor has to certify on estate closing that they have properly completed all tax returns and paid all tax liabilities.

bgaspard
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Re: Inherited Savings Bonds

Post by bgaspard » Fri Sep 08, 2017 7:40 am

Thanks to all who responded. I am switching my focus from minimizing taxes to what are my legal obligations to reporting this interest as income on prior years tax returns. Years 2007 and 2011-1016 are affected. Will discuss with our attorney.

rgs92
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Re: Inherited Savings Bonds

Post by rgs92 » Wed Sep 13, 2017 8:40 pm

It says this on the Treasury Direct site about sending bonds to them to add them to your electronic account:

Have a certifying officer at a bank where you have an account certify your signature in the request for payment on the back of each bond.

So I guess this means you have to get someone at the bank to do something with every single bond before you send it in. I don't know exactly what this means. Has anyone done this with a large stack of savings bonds?

SueG5123
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Re: Inherited Savings Bonds

Post by SueG5123 » Wed Sep 13, 2017 9:22 pm

I redeemed about ten bonds at once a few years ago. The certifying officer at my credit union certified my signature on the Treasury form requesting redemption, not each individual bond.

letsgobobby
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Re: Inherited Savings Bonds

Post by letsgobobby » Wed Sep 13, 2017 10:46 pm

SueG5123 wrote:
Wed Sep 13, 2017 9:22 pm
I redeemed about ten bonds at once a few years ago. The certifying officer at my credit union certified my signature on the Treasury form requesting redemption, not each individual bond.
Correct. since you have the bonds, it's actually pretty easy, and if your bank doesn't know what a certifying officer signature is, the Treasury will accept Medallion signatures (though they don't advertise it).

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