Sorry it took me a while to research your question. In fact, I turned to my Savings Bond expert, Jackie Brahney of www.SavingsBonds.com -- the one place to get specific questions answered, to create an inventory of your Savings Bonds, and to make sure that you cash them in appropriately.
Now, you're about to get some incredible free research. This is so complicated it took me several readings to follow. But there are a lot of "what ifs" involved. After you read this you might want to contact Jackie -- (email@example.com) and pay to join her service and get her specific directions based on the questions she raised. Here's what Jackie wrote to me -- and yes it is LONG: (I would have sent this to you privately as I often respond, however you did not include your e-mail address.)
Terry, For my responses, I am assuming that the correct Treasury Direct Accounts AND conversion accounts were set up (for Aunt and Reader) AND all paper bonds were mailed in and accepted and Reader was granted Viewing and Transaction rights to the Aunts bonds in Treasury Direct account. There are some important questions left out of your readers question that make it hard to give an accurate response, especially:
Reader question: "I have several EE Savings Bond that were issued in 1989 and were owned by my Aunt. l was added as a co-owner in 2013, and my Aunt passed away in April 2016...these were all paper bonds, so I created a primary account and a Conversion Linked Account, and had them converted. " Note: If reader was "legally" added as co-owner in 2013, the bonds would have been "reissued" in electronic format in a Treasury Direct Account as no paper EE bonds have been sold or reissued since January 1, 2012. (Note: only Series I Savings Bonds are still being issued in paper format as a result of a tax refund option.) In electronic format, the reader would likely have been designated with certain rights as the "co-owner" in 2013. With electronic bonds, the term is "with" (not co-owner). The primary owner is (normally) responsible for the taxes as they are the person who purchased the bond(s).
The Reader CAN include all of the interest earned up until the date of death, on the Aunts final tax return. Go to SavingsBonds.com and get values and learn about services to “back date” interest earned amounts as of the month and year the aunt passed. Also Reader should discuss if including all of the interest earned from 1989 until April 2016 (date of Death), is a smart financial move/acceptable with the estate and their attorney. We always suggest bond owners consult a professional financial advisor and/or tax attorney in these circumstances.
All the interest - FOR ALL THE BONDS in the aunt’s portfolio - earned from issue date until date of death in the Aunts portfolio must be included – you can not pick and choose certain bonds. It is “all or none” regarding reporting the interest earned since date of death for the bonds in a portfolio.
IMPORTANT - WHOEVER CASHES IN THE BONDS (i.e. Reader or siblings) DOWN THE ROAD, SHOULD HAVE COPIES OF THE AUNT’S TAX RETURN INDICATING THE AMOUNT OF INTEREST ALREADY REPORTED TO AVOID DOUBLE TAXATION ISSUES. THEY SHOULD INCLUDE THE AUNT’S TAX DOCUMENT WITH THEIR TAX RETURN WHEN THEY REDEEM OR THE BOND REACHES FINAL MATURITY - WHICHEVER OCCURS FIRST.
When the electronic bonds reach FINAL maturity (in this case 2019 which is 30 years from 1989) IF the bonds haven't already been cashed in, the bonds will AUTOMATICALLY be redeemed, an email will be sent to the primary account holder, and the account holder has to download the 1099-INT and include the interest on their tax return for that year.
When either cashing in or bond reaches final maturity, THE AMOUNT OF THE 1099 WILL BE FOR ALL THE INTEREST EARNED SINCE THE DATE OF ISSUE. The Treasury does not keep track of any interest already reported. The new primary owner(s) will need to show documentation of prior tax reporting.
Technically, if the aunt’s final tax return includes all of the interest earned to her date of death (April 2016), the new primary owner of the bond(s) would only be responsible for the taxes from the time the bonds are in their account to the date of redemption or when the bond reaches final maturity (in this case @3 years).
The bonds should be moved from the Aunt's account into the Reader’s account OR into the Siblings’ account (ASSUMING THE SIBLINGS ARE ALL OVER 18 – otherwise Minor accounts have to be set up in Treasury Direct under parent and there are different rules) by using FORM 5446 which can be downloaded from TreasuryDirect.gov website under “search box” and must be signed with a “signature guarantee” such as a bank rep, and NOT a notary and submitted with a death certificate and mailed into the Treasury. (Terry, don’t ask me why you can’t use a notary – but you can’t) - to request to move bonds from a DECEASED persons account to the person named “with” or beneficiary account.
TIP TOEING ON A RAZOR HERE TERRY READ CAREFULLY….
MAJOR DISCLAIMER TERRY – NOT SURE IF IT IS LEGAL TO GO INTO A DECEASED PERSONS TREASURY ACCOUNT. Don’t think so…however, the READER LIKELY HAS ACCESS (TO VIEW AND TRANSACTION RIGHTS?)--BUT THIS IS WHAT I LEARNED BOND OWNERS DO. IF the Reader has access to the Aunts Treasury Direct account, they can look under the Aunts “ current holdings” and determine who is designated as “With” (i.e. or co-owner) OR as beneficiaries. Until an account is closed or all the bonds are moved out of the account - those who are authorized do access accounts and make changes to the account do change co-ownership or beneficiary to avoid extra paperwork and interest posting/taxation issues.
- WHEN did the reader convert the paper bonds - in 2013 (before Aunts death) or after the aunts death*?
- Who is listed as the primary owner on the electronic bonds – the Reader or the aunt? FOR MY RESPONSES (below) the Aunt is the Primary Owner on the e-bond Treasury Direct accounts and the Reader is the Co-Owner (or properly termed “With.”)
AGAIN – NOT SURE THIS IS LEGAL TERRY, BUT IT IS BEING DONE.
IF the Siblings are (now) listed as “with” THEY can also request to have the bonds moved from Aunts name into their name also using FORM 5446 to avoid an extra transfer from the Readers account.
OTHERWISE the Reader would become the Primary owner of all the bonds as they are designated as “with” after the Aunts’ passing. Form 5546 notified the Treasury of the Aunt’s death and a request for the bonds to be transferred into Reader account. TO then transfer the bonds to the Siblings account FORM 5511 would be filled out and submitted by the Sibling.
Additionally, if the Aunt's bonds are moved into the Reader’s rather than directly to the Siblings (from the aunts account) the Reader would be responsible for the bond interest earned from the date of Aunt’s death (April 2016) until the bonds are moved into the Siblings account. If this is the scenario, The Reader should go to the Bond Calculator and determine the amount of interest earned for the period the bonds were in their account and submit it along with the aunt’s tax return ( to avoid double taxation). The Siblings will need to have aunt's AND Reader's tax documents showing all of the interest already reported.
REMEMBER REMOVING PRIMARY OWNER ON A BOND USUALLY CREATES A TAXABLE EVENT.
According to the Readers question, she wanted to ultimately get two bonds into a siblings account (Sibling must have a Treasury Direct account opened to accept the bonds or be designated “with” or beneficiary). It would be easier to transfer bonds from Aunt to Sibling – however, the Sibling has to have the correct designation in the aunts “current holdings” of the bonds.
Last paragraph of reader question- I do not know why she can’t make changes. Reader should go to to “ManageTab” in Treasury Direct account or use the contact us at Treasury if they can’t access the aunt’s account.