Discussion:Are Bonds paybable on death taxable to heir

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Discussion Forum Index --> Advanced Tax Questions --> Are Bonds paybable on death taxable to heir
Discussion Forum Index --> Tax Questions --> Are Bonds paybable on death taxable to heir

Dacowles16 (talk|edits) said:

21 September 2008

I have a client whose father passed away in 2007 and received US savings bonds that were Payable on Death (POD) and some were co-owned. My client received a 1090-INT for $27,000 and believes that the estate has included some of these bonds in the estate even though my client cashed them (the majority were payable on death). Are these all taxable to my client? My client seems to think that POD Bonds are not taxable to estate as they pass on the heir. It would seem to me if client cashed bonds then interest is taxable to them and bonds excluded from value of estate? This is going to cost my client nearly $5,000 in federal taxes if all is includable on their return.

Blrgcpa (talk\|edits) said:	21 September 2008
How did he cash the ones that did not have his name on it?

Walking Spanish (talk\|edits) said:	21 September 2008
What exactly do you mean when you say "included in the estate"? Do you meant they were included on the 706 or state inheritance tax return, or that the interest was taxed on the 1041? More information, please!

Trillium (talk\|edits) said:	21 September 2008
Barb, Dave said most were POD, so client would have no problem cashing them if he was named beneficiary via the POD designation. And the others he was an owner to begin with, it would appear. Dave – FYI while we’re waiting for estate gurus to come back from the weekend: Death of a Savings Bond Owner.

Dacowles16 (talk\|edits) said:	21 September 2008
I am requesting more information from client and thanks for input so far everyone. Death of a Savings Bond Owner helped also.

Riley2 (talk\|edits) said:	22 September 2008
POD bonds are includible in the decedent's gross estate. See Sections 2037 and 2038. The beneficiary must must include the accrued interest in gross income unless the executor of the estate made an election to include the accrued interest on the decedent's final 1040.

Riley2 (talk\|edits) said:	22 September 2008
Also, under the income in respect of a decedent rules, the beneficiary can claim a deduction for the federal estate tax attributable to the accrued interest included in the decedent's gross estate.

Kevinh5 (talk\|edits) said:	22 September 2008
In addition to the election that the executor may make on the decedent's final 1040, an election may also be made on the estate 1041 to include accrued interest up to that date. This would be extremely helpful if there were unused deductions on either the decedent's 1040 or the estate 1041.