Savemoore saved more than most Army officers. Sam purchased many series
Bonds over decades, naming himself and his spouse as joint owners.
wife, predeceased Sam, so Sam died owning the bonds which became assets
Volume 16 Issue 5 --
Volume 16 Issue 5 -- September/October 2012
While most people think of US Bonds as being in paper form, as of January 1, 2012, paper certificates or bonds were terminated. After that, US Bonds or certificates must be purchased in electronic form using a system known as “Treasury Direct.”
When a bond is issued jointly (as is common among married couples), ownership of the bond passes to the survivor when one of the joint owners dies. Upon the death of the second owner, the survivors must decide: “what do we do with these?”
This newsletter is not intended to encourage or discourage the purchase of US Bonds, but instead its goal is solely to help those faced with the task of dealing with US Bonds held by a decedent’s estate or trust.
Aside from patriotism, there are other reasons to purchase U.S. Bonds, such as the exemption from state and local taxes. In addition, interest on most U.S. Bonds accumulates tax free until they are redeemed or reissued, so there is a deferral of income tax. When one wants to receive “cash” for a bond, the bond is “redeemed” rather than “sold.”
In some cases bonds can be directly transferred (as opposed to redeemed) to a beneficiary of a Will or Trust. In other cases, however, redemption of the bonds is the only alternative. Bonds that are within six months of maturity and bonds that have matured and are no longer receiving interest cannot be transferred.
In the case of Sam Savemoore, some of his bonds had been in existence for so long that they were no longer paying interest and therefore could not be transferred.
Even if a bond transfer is possible, in many cases it is easier to redeem the bonds and distribute the cash rather than transferring the bond.
If a decedent’s estate owns some bonds that cannot be transferred, in most cases it would be better to redeem all of them rather than to redeem some and try to transfer the remainder. Different forms are needed for transfer or redemption. The US Treasury website can be used to find the necessary forms and some guidance.
There are additional hurdles for survivors in order to deal with US bonds. To redeem or transfer the bonds, it is necessary for the survivors to obtain death certificates for both spouses with “raised” seals (a seal leaving an impression on the paper). Normally this will require that someone contact the state vital records department and make a written request for such death certificates using the approved state form.
Also in almost all cases it will be necessary to obtain a re-issued probate “letter of authority” from the probate court in the state that handled the probate of the decedent, also with a raised seal. (The name of the probate letter of authority will probably vary with the jurisdiction.) U.S. Treasury requires these to be sure it is dealing with the correct and authorized representatives.
In order to further protect the Treasury from fraudulent claims, the office in Parkersburg, West Virginia requires that the redemption or transfers forms be appropriately completed and submitted along with “medallion seals.”
Medallion seals are considerably different from a notarized signature. Notarization generally means that the notary has adequate evidence that the person who signed the document is in fact the signor. With a medallion seal, the hurdles are much higher.
Medallion seals, in general, can only be obtained from certain banks and savings institutions that have agreed to provide medallion seals. The main difference between a notarized signature and a medallion seal is that the institution providing the medallion seal is guaranteeing with its own financial worth or credit should the person requesting redemption be doing so fraudulently.
Institutions authorized to issue medallion seals may also have their own particular requirements. In some cases, a bank may require that the person seeking a medallion seal have had an account at that bank for six months or more. Not all banks, stock brokerage firms, and financial institutions are required to provide medallion seal services.
At the end of the process, after the bonds are redeemed, there is a question of interest income. The estate of the decedent will receive an IRS Form 1099-INT reflecting the interest income received by the estate, which income needs to be reported to the IRS.
If you live in the Virginia or the DC area and need assistance with redeeming US Bonds or similar probate matters, please give Newland & Associates, PLC, a call.
Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.
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