The U.S. Treasury offers Americans lots of ways to invest. Treasury savings bonds, including EE, E and I bonds, are among the best known of these investment vehicles. You buy a bond -- by yourself or with a co-buyer -- paying face value. When you redeem the bond down the road, you get the original face value plus the earned interest. The Treasury website has rules for how to handle the death of a co-owner.
When Death Comes
When someone dies, an executor has to wrap up her affairs and dispose of her estate. If the deceased didn't name an executor in her will, the probate court, which handles estate cases, will appoint one. The Treasury says that if the executor discovers the estate includes "e-bonds" -- electronic savings bonds -- he should call the Treasury for information about the ownership. If the bonds are in paper form, the executor can read the bond and find out if there's a co-owner.
If you co-own savings bonds with someone else, you become sole owner as soon as the other person dies. You don't have to wait for the probate court to finish its work. This does not, however, exempt your inheritance from estate taxes. If, say, your father buys $500 in bonds and makes you co-owner, all $500 becomes part of his estate. If you contribute $100 to the purchase, $400 is part of his estate when he dies.
The odds are that you won't have to worry about estate tax; most Americans don't. As of the time of publication, it only applies to estates worth more than $5.34 million. On top of that, if your spouse is your co-owner, anything you inherit from him is exempt from estate tax. If, say, he dies with a $12 million estate and you inherit $10 million, the remaining $2 million is less than the $5.34 million threshold and isn't subject to estate tax. If the estate isn't taxable, neither are the savings bonds.
Paying the Tax
Even if the estate's big enough to trigger estate tax, you don't have to worry about cutting the Internal Revenue Service a check. Paying the tax -- on your savings bonds and any other assets -- is the executor's job, not yours. If the executor mismanages the estate and doesn't pay the tax bills, it's possible the IRS might want money from you. The first person the agency sues is usually the executor, though.
- Treasury Direct: Treasury Securities & Programs
- Treasury Direct: Death of a Savings Bond Owner
- Colorado Bar Association: Joint Tenancy
- Internal Revenue Service: Instructions for Form 706
- Internal Revenue Service: Estate Tax
- Forbes: When Estates Don't Pay Tax, IRS Chases Beneficiaries
- Internal Revenue Service. "Publication 559 Survivors, Executors, and Administrators," Page 14. Accessed Sept. 17, 2020.
- Internal Revenue Service. "Publication 559 Survivors, Executors, and Administrators," Page 3. Accessed Sept. 17, 2020.
- Social Security Administration. "If You Are The Survivor." Accessed Sept. 17, 2020.
- Department of Justice. "206. Priority for the Payment of Claims Due to the Government." Accessed Sept. 18, 2020.
- Internal Revenue Service. "Estate Tax." Accessed Sept. 17, 2020.
- Internal Revenue Service. "Publication 559 Survivors, Executors, and Administrators," Page 13. Accessed Sept. 17, 2020.
A Durham, NC resident, Fraser has written about law, starting a business, balancing your budget and fighting evictions, among other legal and financial topics.