US Savings Bonds payable upon death

What are the tax consequences on savings bonds payable upon death of the US savings bonds' owner? How are US savings bonds taxed upon death of the US savings bonds' owner?

At death of the US savings bonds' owner, all accrued income of the US savings bond is subject to estate tax and possibly income tax. This is an example of income in respect of a decedent (IRD).

While the estate must pay the estate taxes on the fair market value of the US savings bonds, the executor of the estate can elect who will pay the income taxes on the accrued income of the savings bonds - either the estate or the Us savings bond ’s inheritor.

The interest of the US savings bonds is always exempt from state income taxes. If the decedent did report the income from the US savings bonds annually, the final year’s interest income must be reported on the decedent’s final income tax return.

The options the executor should consider with respect to US series EE savings bonds are as follows:

Note:

If beneficiaries of the US Series EE savings bonds are named directly on the face of the US savings bond, then the executor may only utilize election “A” above, since the savings bonds pass directly to the named beneficiary and are not under the control of the executor.