I bonds to daughter or granddaughter?
I am 86 and have many i bonds that I purchased many years ago. I put my daughter later on
as the co owner but I paid for the I bonds when I bought them originally. My daughter and I have agreed to remove her as co owner so that I can put them only in my name and after that put my grandchildren on each of those bonds as beneficiary.
I found via the internet and treasury direct I can do this but now I need to know if there will be a tax liability for me since these are old bonds and the interest due is really high. I will stay as the owner of the I bonds.
The only change is to just remove my daughters and she agrees. Thank you so much for your help. i found your website when i googled about the taxes on I bonds after change of ownership.
Terry Says
OK, this question is so complicated that I turned to my Treasury contact for the complete and correct answer!
The first thing you need to remember is that upon your death — no matter who is listed as the co-owner or beneficiary — income taxes on all the appreciation of the bonds will become due at your death.
And another key point, is that depending on parental income, if you die in a year that your grandchild needs to pay for college, there might be a tax break for that family, if the child is named as beneficiary. BUT, the owner of the bond must have been 24 years old when the bond was issued. Read this: https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/using-bonds-for-higher-education/
That just might be an argument for keeping your adult daughter as co-owner if she is the mother of your grandchildren — in case you die in a year in which they attend college!
As for the tax implications, here is what my Treasury expert says:
“Removing her daughter and then adding her granddaughter as beneficiary will not cause a taxable event. As long as she stays as the primary owner, she keeps the interest in her name. This is just a simple registration change in the system for her to make. Now the granddaughter will be on the hook for all the accrued and future earned interest and will be taxed on it upon redemption after she passes.”
And how do you do that?
“Under the manage direct tab, she would select update registration list under the manage my account section. She would then add the new registration as her and her granddaughter. Then, under the manage my securities section she would select edit a registration. She would have to answer a security question and then it will list out all her bonds. Just select all of them, then select at the bottom. On the next screen, she would see a drop down at the bottom that says registration to the left of it, and she would just select the new registration of her and her granddaughter. When she creates the new registration, she can create it either as POD to the daughter or a joint ownership with the granddaughter.”
