Are Savings Bonds Held Jointly Included in Estate Taxes?

by Tom Streissguth, Demand Media
    An estate can include savings bonds that didn't pass directly to the spouse.

    An estate can include savings bonds that didn't pass directly to the spouse.

    When you pass away, your legal estate includes all of your property and assets. If it's worth more than $5.25 million (as of the time of publication), the IRS will levy estate taxes on it. Although an investment held in your own name goes to the estate, joint property generally passes to the other account owner of record. This goes for stocks, bank accounts, and government bonds including savings bonds.

    Joint Bond Owners

    The U.S. Treasury issues U.S. savings bonds, which return their accrued interest when you cash them in at maturity. The Treasury allows individuals as well as joint owners to buy savings bonds. The interest is subject to federal income tax, although it's exempt from state and local income taxes. If an individual owns a bond, then the bond as well as any pending interest payments become part of his estate, and subject to estate taxes. The state tax exemption does not apply to estate or inheritance taxes -- for these purposes, savings bond interest is fully taxable.

    Jointly Owning Bonds

    If joint owners are named on a savings bond and one of the owners dies, the surviving owner takes legal and sole possession of the bond. The interest of the deceased individual in the bond does not pass to his estate. A survivor may redeem the bond, or may have it reissued in his own name, either as the sole owner or with another individual. However, the Treasury won't reissue bonds that are within a month of their maturity date.

    Dying Together

    If the joint owners of a savings bond have both passed away, the bond passes to the estate of whomever died last. This is determined by the death certificate, which lists the date and time of death. If they died simultaneously, then the Uniform Simultaneous Death Act provides for the property of each to pass to heirs rather than to the estate. In this case, the interest in the bond is not shared among or assigned between the two estates.

    The State of Estates

    If the savings bond belongs to a trust set up for the benefit of someone else, the bond is still considered a part of the estate of the deceased, although the bond can pass to the heir without a probate court being involved. An estate includes savings bonds and other assets (with certain exceptions) that belonged to the deceased, including property that passes directly to a spouse. If a savings bond is included in the estate, its value is the fair market value at the time the owner died.

    About the Author

    Tom Streissguth has worked for over 15 years in the legal field as a writer and legal assistant, and has authored numerous articles on Social Security disability law. He has many nonfiction and reference titles in print, including works for The Gale Group and Lerner. He holds a Bachelor of Arts from Yale University.

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