Ask Terry Questions I Bond beneficiaries and general questions
Deciding to buy $10000.00 I Bond. I am 79 and brother is 75. His is my beneficiary, but I have put his name on my investments to avoid probate and make it easier.
My question is: if I die first, it goes to him as beneficiary. But if he dies first, how do I change the beneficiary?
As beneficiary – it automatically changes to him? Or should I set up a bond manifest for him to have records? Then he changes it? How?
If he dies first: can I divide it up to his 3 children? Or stays the original amount? Only one beneficiary? I don’t want to give to them if he is alive.
Earned interest: can I get it annually (monthly) or must wait until it is cashed in?
Can I take out some and buy different bond for less? Without losing money?
Sorry to have so many questions, but banks and brokers don’t typically handle these.
Appreciate you and your time.
Terry Says
OK, let me try to deal with these one by one.
First, you can name a person as either a co-owner or beneficiary. You likely want to name a beneficiary.
Either way, at your death that person gets the bond. The survivor then owns the bond as if he or she had owned it from the beginning. That has certain tax implications, since there is no “step-up” in basis for Savings Bonds. So the next owner will owe all the taxes on the accrued interest when he or she cashes it in. In order to claim ownership of the bond, the beneficiary will have to present a certified copy of the death certificate.
Read these instructions for changing ownership of a savings bond at death.
You can always change the beneficiary. But the bonds have to be reissued if you want to change a co-owner or change your beneficiary using this form.
And your Plan B won’t work. You cannot “split” beneficiaries on a Savings Bond. You get to name one person — either as co-owner or beneficiary. So if your brother dies before you, you’ll have to name one person.
I am going to suggest that you don’t get into this complicated mess! If you will create your own Revocable Living Trust as your estate plan, the trust (with you as trustee while you are alive and competent) can own the Savings Bonds. Your RLT uses your Social Security number. Then you can leave instructions for the successor trustee to cash in the bonds and give the money to your brother if he survives you. And if not, direct the successor trustee to divide the proceeds in thirds, and give them to your nephews and nieces.
As for interest — You do NOT get interest paid to you on Savings Bonds until they re CASHED IN! Then you pay ordinary federal income taxes on the interest you have earned (less the initial investment) but no state taxes.
And you should plan to hold the bonds for at least 5 years to avoid an early withdrawal penalty.
