I have over 100K in US Savings Bonds. They are in my name and my husband. My husband recently died. I don't want to cash them because of the tax ramifications and also because most of the bonds are getting > 5%. I was told I cannot make any name changes, that to do that I would have to sell and repurchase.
Can these bonds be put into a trust? I'm not sure of the terminology, but I mean the kind of trust that protects assets from probate not the kind that protects them from Medicaid.
Sorry for your loss. The link below is to a tax forum that handles some fairly technical matters:
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Ask for links to read more about the issues you are addressing. As far as I know, there is no need to retitle the bonds (make copies of your late husband's death certificate just in case), and if they pay >5% that's good in today's environment. Trusts can be complicated, and I'd be sure about the costs before going with one - not that they aren't good and useful.
As heir/beneficiary, you can have the bonds reissued in your own name without selling/repurchasing. You don't have to pay taxes on them at the time (though you have that option, see below). Further, you can add a new co-owner or beneficiary. That's form PD F 4000. If you add a co-owner or beneficiary, then the bonds won't go through probate when you die.
(Editorial comment - unless there are no assets that pass through will, or the estate is extremely small, an estate will have to be probated. Adding savings bonds to the probate estate can have an impact on the court costs, but may not, depending on state and size of estate. All assets of the deceased, whether probated or not, are considered part of the gross estate for estate tax purposes. Thus, IMHO, the benefits of reducing the probate estate are in many cases vastly overstated. However, in the case of savings bonds, because of their peculiar ability to defer income, not estate, taxes when passed to a beneficiary/co-owner, you will likely want to reissue the bonds.)
Tax consequences - while you make it clear that you don't want to pay taxes on the bonds now, you should be aware that this is an option (e.g. to reduce the size of the estate). Taxes due on savings bonds at time of death can be paid by the deceased on the final income tax return, without selling the bonds. That allows you to keep the 5% rate and reduce future tax liability. You don't have to pay the taxes, but it is an option - the paying of taxes and the selling of bonds are thus somewhat decoupled. (Of course if you redeem the bonds, then you must pay the taxes due.)
This is all spelled out clearly by the Treasury Dept:
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(options on retitling i.e. reissuing)
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(tax impacts of reissued bonds) BTW, the Treasury Dept. is very helpful - I recently emailed them asking how to both reregister and convert to electronic form in one transaction (their website seemed to only describe how to reregester paper to paper, and how to convert to electronic form - which would mean a two-step process), and they emailed back a short, clear set of instructions (yes, using PD F 4000).
It may depend on how the account is titled. If it's treated like a bank account and it's co-owned, it may be frozen until the executor of the estate clarifies it for the bank. If it's joint tenants with right of survivorship (JTWROS), then it passes to the surviving owners *outside* of probate.
If they're paying a good rate, you're probably best off just leaving them alone. But in the meantime, check into exactly how they are titled.
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