Posts Tagged ‘savings bonds payable death’
US Savings Bonds Payable Upon Death
June 7th, 2006
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 years 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:
- Elect to accrue all income on the decedent’s final Form 1040 and pay the necessary income tax. This income tax may then be deducted on the decedent’s estate tax return.
- If the beneficiaries of the estate are in low income tax brackets, the estate could redeem all the US Series EE Savings Bonds and distribute out the income to the beneficiaries. The beneficiaries would pay income tax on the accrued interest and receive a deduction for some of the estate taxes paid.
- The Us Savings Bonds could be distributed in kind to the beneficiaries without realizing gain or loss. The beneficiaries of the Us Savings Bonds would then decide whether to accrue the income on an annual basis or hold the US Series EE Savings Bonds to maturity.
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.
Posted in US Savings Bonds | 
Tags: Savings Bonds, savings bonds payable death, Series EE Savings Bonds | 
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