Home > Boring Update & Question about Bonds

Boring Update & Question about Bonds

June 16th, 2021 at 04:27 pm

It's been a few weeks since my last post - since then, not much to report. 

School is going well, and I have adapted to the workload.  I'm happy to say that it feels much more doable, I was just overly excited and doing a lot at once lol.  I've fallen into a good groove, and can't believe that the end of next week marks halfway through the session.  

Work is still nuts, and I haven't heard about the promotion yet.  It would be in effect for July 1, and they usually notify people a few days to 2 weeks before.  So basically, I could hear at any point now.  

Finances are chugging along.  Things are slowing down but that's to be expected.  Some big chunks of money are coming in over the next few months, but I already have the plan on what is going to happen with those, so it's just execution.  I still think that it'll be a very successful year financially, and even though I am not following the plan quite as strictly as I was at the outset, I've found balance that I can live with.  

Yesterday was payday.  Nothing out of the ordinary.  Paid a bunch of bills, debt went down some, savings went up some.  Again, I'm waiting with baited breath for news of the promo so I can figure out how this impacts my budget for the rest of the year.  

A question has come up that I am wondering if anyone here can answer.  When my grandfather passed, there were quite a few fairly high value savings bonds (series EE) left behind.  All have a POD/TOD.  He was listed as the sole owner on the bonds, and did not pre-emptively pay any taxes on the interest earned over the years.  The bonds are all at full maturity.  His heirs, my mother and her sisters, have agreed that they are aligned with having his estate pay the income taxes on the accrued interest, and the plan is to cash all of the bonds this year, so that the 1099s can be included in his & my grandmother's 2021 taxes (MFJ, Grandma has advanced dementia, so she unfortunately is not a part of these discussions).  The tax implications make no difference for their/her financial situation. 

Of the PODs, one of them is on Medicaid, and is concerned that if she cashes in the bonds left to her, that she will get bumped into the next income bracket, which would boot her off Medicaid.  On the flip side, she is unemployed, and really could use the cash infusion.  From my research, it appears that it would have been easier if the bonds were cashed while he was alive, because he would still be the owner....but that's not where we ended up.  So I guess the main question is.....since there are PODs on the bonds, are we able to have "him"/his estate be responsible for reporting the income/paying the tax on the interest?  Is it as simple as the POD takes their bond to any bank, and brings the required documentation (assuming ID, and his death certificate), then the bank cashes, and generates a 1099, which I then have his tax preparer include in his 2021 tax filing?  If this is the case, it would seem to me that the PODs would not be the ones reporting the income, but he would.  Anyone have any insight here?  I have been researching on the Treasury site, but of course, it's not super clear.  FWIW, the other PODs don't really care who reports the income/pays the tax - it's just this one person with a tenuous situation.  As the person handling all of the paperwork, I have just asked that if indeed the 1099s will have his name on them, that all of the bonds be cashed in 2021, so that I can include them all with his final tax filing.  I don't want to be filing taxes for him years after he is gone.  I am trying to simplify all of the estate matters for my grandmother as well.  

2 Responses to “Boring Update & Question about Bonds”

  1. Lots of ideas Says:

    The POD (pay on death) bonds transferred to the beneficiary as soon as the owner died. That person is responsible for the taxes, which is due on the difference between the price paid for the bond and the current value. The amount paid on the bond is inherited money, probably not taxable. The interest is.

    Someone trying to stay below an income level might be better to hold the bonds and cash them over a few years to stay within income limits.

  2. Lots of ideas Says:

    My understanding is that the POD will have to provide their social security number and identification to cash the bond.
    The 1099 will be issued to that person.

    The person who controls a cash amount from the estate could gift the tax amount to that person, but if it is a large amount, you need to make sure that you/they don’t incur a gift tax liability.

    You should verify with a tax accountant though...I do not have a degree, just experience- and the law is always changing!

    Even people with ‘small’ estates can get into tax problems/issues. My family is going through something similar where my aunt made several ‘bad’ decisions because she ‘saved’ money by not getting expert advice - the cost of the ‘advice’ she didn’t get is costing her children multiples of that through taxes...and sadly, family discord.

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