Savings Bonds and the death of a child

Friday, November 26th, 2004
Categorized as: Inheriting and bequeathing US Savings Bonds

We recently lost our daughter in a automobile accident. She was 19 with a four-month old daughter that we are now raising. I had bought savings bonds for her education and would like to know how I can transfer the bonds into her daughter’s name? What is the time frame to do this and what tax issues am I faced with? Most of the bonds have me as the co-owner but a few only have her name on them. I would very much appreciate some advice on what to do.

Tom’s response

I can’t imagine anything more painful than losing a child. I was at a play here in New York earlier this week in which one of the characters had lost a child many years earlier. The character quoted the following line from Shakespeare’s King John:


Grief fills the room up of my absent child,
Lies in his bed, walks up and down with me,
Puts on his pretty looks, repeats his words,
Remembers me of all his gracious parts,
Stuffs out his vacant garments with his form;
Then, have I reason to be fond of grief?

There are no time limits for dealing with this. There aren’t any immediate tax implications, but there will be future ones depending on how you decide to register the bonds.

The bonds on which she is the sole-owner will be the most difficult to deal with. What you need to do and what forms to use to have the registration updated depends on several factors that are too complicated for an email or web post. The simple solution is to use this form to cash the bonds and then reinvest the money.

On the bonds where you are co-owner, changing the registration is easy enough (see my post changing the registration on inherited co-owner bonds). The difficult part is deciding whether to register them in your name or her name.

If you want to try for the Savings Bond education deduction, the bonds need to be registered in your name. If there is a co-owner, it must be your spouse. Your granddaughter could be the beneficiary, but not the co-owner.

You can take the deduction on any dependent, so it doesn’t matter that she’s your granddaughter and not your daughter. However, there are significant limitations on this deduction in other areas.

Another option is to register all the bonds in your granddaughter’s name and make yourself or your wife the beneficiary (not the co-owner). Unfortunately, this will be a taxable event. On the other hand, there are future tax advantages to doing it this way, but it requires switching the bonds to accrual basis accounting. Again, this is complex, but it’s fully explained in my book.

I’m sorry this is all so complicated.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

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June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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