Should we add our children's names to our Savings Bonds?

My wife and I are elderly and we are wondering if we should change our EE bonds from both our names to add our children's names so that when we die they will not have any problem cashing them in.

Tom's response

A Savings Bond can have either one or two names on it - never more. The second name can be a co-owner, who can cash the bond anytime, or a beneficiary, who can only cash the bond after the owner has died.

If you don't change the current registration, after both you and your wife die the bonds will belong to the estate of the person who died last. That person's Will then determines how the bonds are distributed to your heirs.

If that's not what you want, one possibility is to have the bonds re-registered so that each bond is split in half (this isn't possible, however, with some denominations) with one half registered to you and the other half registered to your wife.

Each of you can then add one person as a beneficary to each bond. The beneficiary designation overrides your Will and keeps the bonds out of probate court.

If you go this route, you need to make sure that the Treasury doesn't call it a taxable event when you split the bonds.

You accomplish this by writing a letter explaining that you and your wife put up the money for the bonds in equal amounts and that you only want to do the split if it's not taxable. The process is similar to Splitting Savings Bonds after a divorce and uses the same form.

Another possiblity is to start cashing a few bonds each year and buying new ones registered the way you'd like. This means the interest earned by the bonds you redeem will become income to you in the year you cash them and you'll have to hold back some of the money to pay the taxes.

However, assuming your tax rate is lower than your children's and that you do this with a limited number of bonds per year, it can be the easiest way to accomplish what you want and it can also save your family tax money.