Managing Old-School Savings Bonds of a Decedent…and Why They’re Soulful.[1]
By Gerarda M. Culipher, Esq.[2]
America’s “Silent Generation,” the cohort of WWII’s younger siblings, is defined as those born between 1928 and 1945. And they are reaching longevity horizons, as I type. These fantastic Americans were babies born in the midst of a terrible Depression, who, surviving that great strain, watched their glamorous older siblings head overseas to serve, and save, a free world…sometimes never to come home. A correct kind of pride in that terrible War, as well as in America’s great Mission, influenced this cohort. They were the impressionable youth who, in Winter of 1961, heard their dashing new President challenge them not to ask from their Nation, but to give to their Nation. Many, many answered that call– cheerful in service, certain of cause. Is it any wonder that The Silent Generation invested so faithfully in U.S. Savings Bonds? Today, heirs and beneficiaries are inheriting these unique, clunky, and proud, asset-types; but what are savings bonds and how exactly are they handled, when probated?
What is a Savings Bond?
In simplistic terms, a savings bond is a non-negotiable security, issued by the U.S. Department of Treasury, which a customer purchases well-below “face-value” and which earns interest over decades until its time of maturity or redemption.[3] As a program, the E-series (modernly-denominated as “EE-series”) and I-series bonds allow someone to invest in America’s Mission, by helping service debt today, for a modest return on that investment tomorrow. During periods of War, they are described as “War Bonds.” The iconic WWII posters hectoring us to “Buy War Bonds!” were stunning, and successful, American propaganda. Generally, savings bonds are considered safe, sound, affordable, investments.
Paper Savings Bonds have a distinctive look; they resemble the old “Traveler’s Checks” of yore. To younger people, they may look like inexplicable ‘Monopoly Money.” Almost like a stock certificate, the physical, paper bond may be colorful and have a famous American on the face of the bond. They are valuable assets, which can be cashed-in by a court-appointed Guardian/Conservator of an incapacitated adult to pay for medical care or other support of the Ward, or even, by an Agent under a Power of Attorney who is helping an older family member with their finances, as the elderly person declines. So don’t dismiss anything as beautiful, and useful, as a savings bond, when you find one. Equally, in today’s digital banking reality, bond-owners may have electronic savings bonds in a “Treasury Direct” on-line account….those will be harder to detect, and you should contact Treasury[4] promptly, if you find evidence of such an account belonging to your Ward, Principal, or Decedent.
Often, an Executor or Trustee may discover these paper bonds in a safe deposit box, or a desk drawer of an ill- or recently-deceased Loved One. Sometimes printed on thick cardstock, paper savings bonds will have the owner’s name printed on the face of them. If a couple has BOTH names on the bond, the bonds behave as a “right of survivorship” asset; meaning, that when the first spouse passes, the remaining name on the bond becomes its sole owner. The asset’s ownership inures to the Estate of the Second Spouse to pass away. To the extent an owner/heir cashes-in a bond, the interest earned at that time, will be reported to that person.
How Does a Savings Bond Behave?
Because a savings bond may double in value at maturity between the time of issuance and the time of redemption, the interest calculated at redemption can be high and may increase the Owner’s taxable income for the year in which it was cashed. Also complicating matters, the owner of a savings bond may have elected to stagger reporting the estimated income in advance of redemption, as part of their larger tax-planning strategy. But as a practical matter, the interest on a savings bond is realized, for tax purposes, at the end/redemption. If you are caring for/assisting an elderly family member as their DPOA Agent, remember that any interest realized at the time of the cash-out will be reported to the Elder’s SSN, as a 1099-INT, which is the form folks get for the interest earned on any savings account they have. Unlike the interest earned on a savings account (which is earned in real-time and reported annually,) the interest on a physical, paper savings bond accrues in one-fell-swoop, at the end/redemption. If you are a Fiduciary for an Incapacitated Adult/Ward or Agent for an elderly Principal, you may want to talk to their tax preparer/accountant about the overall income-load the Owner will bear for that given year.
Generally, a paper savings bond can be redeemed at a bank, although it is best to call the bank branch in advance, to ensure that that branch has a teller trained in this type of security, so they can do the transaction for you, or for your Loved One. Alternatively, the Agent/Conservator/Executor may submit the paper bond using Form FS1522[5] which accompanies the physical bonds, which are sent to Treasury for redemption, at their Retail Securities Team, which is located in Minneapolis.
If you have a probate in a state that has “court-supervised” probate process, like Virginia, the Executor will have to list each Bond, by serial number, on any Inventory[6] of assets filed with the Commissioner of Accounts[7] for the Circuit Court where your probate matter is pending. As part of that important reporting, the Executor will have to determine the savings bond’s value at the Date of Death of the Decedent. There is a good and easy calculator function on the Treasury Department’s website, that lets the Executor input the paper bond’s serial number, alter the date to the Month and Year of the Loved One’s passing, and get the Date of Death value.[8] Because Probate can take many months, later in time, as the Executor prepares her “Accounting” for the Commissioner of Accounts, the Redemption Value is reported.
CONCLUSION
It is axiomatic that a solid investment strategy in life is the “diversified portfolio.” This has come to mean a healthy mix of high-risk and low-risk assets, peppered perhaps with stocks, real estate, crypto, and, yes, such old standbys as gold and government savings bonds. But there is more to the story of a “safe” savings bond investment strategy. While the colorful, beautiful, cardstock savings bonds can be clunky and complicated for Executors to process and probate, those remarkable notes can be seen as a high form of Patriotism. For an older generation of Americans, who came up amid austerity, war, and optimistic service, “Buy War Bonds!” was a call to support all that is good about America…America herself. Safe. Sound. Soulful.
For more information on planning your Estate, or how Fiduciaries like PoAs, Court-Appointed Conservators, Executors or Trustees can and must handle, report and distribute assets like government savings bonds, contact the lawyers at Dominion Law Group, LLP at 703-865-2525 for a free consultation.
[1] Buy war bonds | Library of Congress The artwork of this classic, war bond poster, is found in the Library of Congress digital files and is by Newell Convers “N.C.” Wyeth, who was born in Massachusetts in 1882 and died just one month after Japan surrendered, ending WWII. N.C. Wyeth was father of the famous 20th Century realist/portraitist, Andrew Wyeth.
[2] Gerarda M. Culipher, is a member is a member of the DC and Virginia bars, practicing in the estate planning and probate/incapacity matters, but does not specialize in tax law, so this article is best understood as general, legal information. Every case, every asset, is different.
[3] Savings Bonds: About — TreasuryDirect
[4] Court-appointed representatives — TreasuryDirect
[5] Fiduciaries may redeem the bonds to The Estate using form FSF1522 and will have to supply the death certificates and Letter of Qualification/Letter of Appointment.
[6] CC-1670 Inventory for Decedent’s Estate (Master, p. 1-4)
