Should the heirs or the estate pay the tax?
Friday, February 18th, 2005
Categorized as: Inheriting and bequeathing US Savings Bonds
My brother and I inherited a large sum of E and EE bonds upon my mother's death. Does your book clearly explain if it would be more beneficial from a tax standpoint to have the estate redeem the bonds and pay the income taxes, or for me and my brother to redeem the bonds and pay the taxes?
Tom's response
Like any book, Savings Bond Advisor covers issues in a general way and shows you how to do the analysis. But there's no single right answer to this question, so the book can't do the analysis for you.
You'll have to look at your mother's marginal tax rate as compared to yours and your brother's. I suspect it will work best to have the estate cash some of the bonds, but pass most of them to you and your brother, which you eventually cash over several years.
You and your brother are exactly the kind of people I wrote the book for. There are ways to reduce your taxes and get the most value out of the bonds.
Other than the education deduction, you're in a position to be surprised by every tax issue the book covers: the deferred-tax time bomb, the double-taxation trap, and the state tax deduction. You could also be hurt by the hidden redemption penalty.
I encourgage you to take a look at the book. Before you redeem the bonds you need to understand why they're not as frumpy an investment as they appear to be.
(Average rating: 4 stars)
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My mother has a large amount of US Savings bonds in only her name. I am her only child and beneficiary. We cash some every year to supplement her social security.
I want to simplify matters in the event of her death and spread out tax liability on deferred interest over several years.
Should my name be on the bonds as a co-owner or as POD beneficiary?
Hi Eleanor - yes, it would greatly simplify matters if you were a co-owner or even a beneficiary of the bonds. Here's the info your mother needs to make you a co-owner or beneficiary on her Savings Bonds.
Tom Adams
Don't forget if the bond are included in the estate and subject to estate tax, then there is miscelleanous itemized deduction NOT subject to 2% Adjusted Gross Income (AGI) limit to lessen the effect of the income taxes due when the bonds are redeemed.
Mark - looking at it another way - when you pay estate taxes on Savings Bonds, part of the value of the Savings Bonds is unpaid income taxes - so you're paying estate tax on money you'll never get - you'll pay it in taxes. So there is a deduction for the person who cashes the bonds and owes the income tax; but sometimes it's better to handle this in other ways.
Tom Adams