Dear Dr. Don,
My father-in-law and mother-in-law are both deceased and left some U.S. Series EE savings bonds in their estate. Some have reached maturity and some have not. What is the procedure to cash these bonds? What are the tax issues? No will was probated.
The savings bond tax issues depend on the decisions your in-laws made about paying income taxes on the interest earnings. It’s common for savings bond investors to defer taxes until the savings bonds are redeemed or mature. If that’s the case, the tax bill comes due in the year the bonds are redeemed.
The TreasuryDirect Web site’s “Death of a Savings Bond Owner” explains how the savings bonds can be redeemed when the named owners are deceased.
The estate issues depend upon their will(s). In the absence of wills, their state’s laws of intestate succession will determine how this plays out. If they were co-owners, then the ownership depends on the estate of the last to die. The interest earnings on the savings bonds become due in the tax year the bonds are redeemed or mature.
Probate isn’t irrelevant, but it isn’t likely to be the answer in this case.
To ask a question of Dr. Don, go to the “Ask the Experts” page, and select one of these topics: “Financing a home,” “Saving & Investing” or “Money.” Read more Dr. Don columns for additional personal finance advice.