Estate with Savings Bonds

[Super Mom]

I have a deceased client that I filed a return for. I reported the interest she received while living. At issue, I just got a call from the lawyer. There are several
thousands of dollars of savings bonds uncashed left in the estate. Question is, did I have recommendations on cashing them in. Higher education among heirs is not at issue. All I could tell her was the interest is not taxable on state (nc) and is taxable on federal. I ASSUME it is still non-taxable on state if inherited. Am I missing anything?

[Burke]

There are some options. The interest, if bonds are cashed in, is taxable same as always. Definitely on federal, usually excluded in most states. Were the bonds in the deceased's name only? If so, they can be divvied up among the heirs and distributed to them in their names and SSN's by completing the proper paperwork. You have to send them back to the Treasury for re-issue. Then the heirs can cash them as they see fit and when they wish. If the estate cashes them in, the interest is taxable income to the estate, which may or may not be desired depending on deductions. The one thing you do NOT want to do is just leave them as they are. It is difficult to change them later after the estate has been closed. And if they were in joint names --- either "and" or "or" --- then they go to that other owner.

[FEDUKE404]

Transfer of bonds to new owner

Although the publication is fairly old, I'm sure there are others. Pay particular attention to pages 9 and 11.

ftp://ftp.publicdebt.treas.gov/marsbom.pdf

Excerpt: "...for example, if a living first-named coowner is removed — the reissue of a paper savings bond may result in a reportable tax event. This means that the person whose name is removed must report for tax purposes all interest earned up to the date of the reissue. Interest earned from that date forward would be taxable when the savings bond reaches final maturity or when the new owner redeems it."

And perhaps more relevant to your situation:
"Several different things can happen when a savings bond owner dies, depending on the form of registration. A surviving coowner or beneficiary — or in their absence the estate of the last surviving person named on the savings bond — becomes the sole owner of the savings bond. This change of ownership is not a taxable event. However, the estate has the option of paying income taxes on interest earned to date."

If these were very "old" (= matured) savings bonds, there may be no more interest to be paid. Regardless, it would appear that the bulk of the tax on the interest income might impact the estate.

As for "reporting the interest she received while living" if you are referring to reporting the annual interest via the accrual method (bonds were NOT cashed in) then that basis information would be extremely relevant to the attorney preparing the estate items (see page 14).

Hope this helps!

FE

[Burke]

Also, I assume you know that you can go online, input the denominations, date issued, (even the Ser #'s if you want a record) and determine what the total interest is to-date. You or the attorney may already have that figure, and that can determine whether it is feasible for the estate to report. Is the attorney the executor? If not, what is his role? I, also, was confused by the statement that you had reported interest while she was living. Were these Series H bonds?

[Gretel]

Decedents final tax return

See TTB 21-9

An election can be made to include the interest up to the decedents death on the final tax return. This election might or might not make sense.

[John of PA]

1040 Form 1310, where do you put an Executor (Refund of Deceased Taxpayer)

I'm wondering what I am missing here. Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer) has a space to identify the person as a court appointed administrator, or a spouse, but there is no space to identify the person claiming the refund as the executor (non spouse) of the Estate. I am assuming a 1310 has to be filed when a 1040 refund of a deceased taxpayer is going to anyone other than a spouse. How would we prepare a 1310 to inform IRS that the refund of the deceased taxpayer is being claimed by an Executor. Thanks for your input.

[Burke]

Just check Box B (appointed by court) and attach a copy of the court order. They sign their name and "Executor" as title. Have to paper file.

[Super Mom]

Also, I assume you know that you can go online, input the denominations, date issued, (even the Ser #'s if you want a record) and determine what the total interest is to-date. You or the attorney may already have that figure, and that can determine whether it is feasible for the estate to report. Is the attorney the executor? If not, what is his role? I, also, was confused by the statement that you had reported interest while she was living. Were these Series H bonds?

No, they are just Series E bonds, and I only reported interest on cashed in bonds at the time.