My Mother found some savings bonds that have reached maturity. If these were added to her trust, would they be tax deferred?

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My siblings are wondering if she should cash and take the hit on taxes and then put into investments for grandchildren. Thanks in advance.

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See your Trust advisor. much depends on the structure of the Trust and whether or not mom applies for Medicaid within 5 years. I would not be gifting them off to grandchildren in any way, large gifts also have tax implications. If the grandkids are college age, it would affect student aid.
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My answer must be jinxed. This is the second time I've lost the entire answer and had to start over.

1. You'll first need to determine (a) the amount of the tax on the bonds and (b) whether this would affect your mother's income to the point that taxes are owed.

Some seniors with limited SS and investments don't even reach the threshold of owing taxes. So if she falls in that category, she can cash the bonds in now if she wants to.

You can calculate the value of the bonds here:

https://www.treasurydirect.gov/BC/SBCPrice

2. If the bonds are retitled in the name of her trust, she'll need to determine if the bonds will be taxed at the compressed rates applicable to trusts.

3. If she does, this article offers information on how to accomplish that:

https://www.treasurydirect.gov/indiv/planning/plan_estate_trustform.htm

And if so, that could increase the amount of tax due after her death, assuming that she has a Revocable Living Trust.

4. I did some quick checking and learned something else. Apparently interest due on bonds can be reported annually, so that's something else to be determined, as to whether the bond interest was reported annually.

See the second sentence in the tenth paragraph on this website, which addresses that issue:

eldercarelawyer/articles/estates/US-savings-bonds.html

HOWEVER, this article addresses savings bonds as a factor of estate taxation; I didn't find an article on savings bonds in trusts, but trusts are subject to compressed rates so that could be a major concern, since the tax due on bonds could, depending on other assets in the trust, increase the amount of taxes due.

For a comparison of individual vs. compressed trust tax rates, see the "Estate and Trusts" table here:

/www3.cbiz/page.asp?pid=11059

6. With all this, it's best to ask an estate planning attorney or tax specialist who's familiar with trusts - not a general CPA but one who actually focuses on trusts. It's a different ball game with trusts b/c of the compression rates.

Whew! I made it through this third time w/o actually losing the text again!
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