Savings Bond registration and your will

I’m making out my will. I’m wondering which is the best way to register my Savings Bonds so that the least amount of tax will have to be paid. I have been told that for tax purposes, the way the bond is worded can determine the amount of tax that has to be paid by the recipient (for example: with OR or POD). Is this a fact or not?

Tom’s response

There are two kinds of taxes you have to be concerned about, income taxes and estate taxes. Whether you use the OR or POD registration won’t necessarily lower either kind of tax, but you do need to give attention to this detail because it can:

• determine who pays the taxes
• lower the fees your estate pays for legal help
• give your heirs quicker access to the Savings Bonds

The trick to paying the least amount in income taxes is to have the person with the lowest tax rate pay them. Is that you or your heirs? If it’s you, would paying all the taxes on your final tax return push you into a higher tax bracket? If so, you should make a plan to cash some of your Savings Bonds each year, pay the tax, and reinvest in new bonds.

This not only gets the income tax out of the way, it lowers the value of your estate by the amount of the taxes. Nothing makes less sense than having your heirs pay estate taxes on the deferred income taxes hidden in a Savings Bond’s value.

While Savings Bonds are free of state and local income taxes, your heirs may have to pay state estate taxes on the value of your Savings Bonds. This is true even if you use OR or POD registration type to keep the Savings Bonds out of Probate Court.

My book, , has a chapter on estate planning that will guide you through all the implications of the various ways of registering your Savings Bonds.