BUREAU OF THE PUBLIC DEBT: Legal Aspects of United States Savings Bonds pot

BUREAU OF THE PUBLIC DEBT

Legal Aspects of United States Savings Bonds

Preface As of September 1, 1998

This pamphlet is designed to highlight various "legal aspects" of United States Savings Bonds, with
emphasis on tax liability and reissues.

While intended primarily for lawyers, trust officers, accountants, and legal representatives of estates, it
may also serve as a guide for anyone who has decisions to make concerning the disposition of
outstanding savings bonds or the form of registration for new bonds.

Subjects are discussed here only in summary form. The pamphlet is not intended as a substitute for
complete and qualified legal advice. For further details, see the regulations contained in current
editions of official Treasury Circulars listed below and referred to in the text.

Series E and Series H and Savings Notes (Freedom Shares):

Circular No. 530—Governs United States Savings Bonds of all series except EE, HH, and I (Title 31,
Code of Federal Regulations, Part 315). Circular No. 653—Offering Circular for Series E Bonds,
issued from May 1941 through June 1980 (Title 31, Code of Federal Regulations, Part 316). Circular
No. 905—Offering Circular for Series H Bonds, issued from June 1952 through December 1979 (Title
31, Code of Federal Regulations, Part 332). Circular No. 1036—Exchange offering of Series H
Bonds (Title 31, Code of Federal Regulations, Part 339). Public Debt Series No. 3-67—Offering
Circular for U.S. Savings Notes, issued from May 1967 through October 1970 (Title 31, Code of
Federal Regulations, Part 342).

Series EE and Series HH:

Public Debt Series No. 1-80—Offering Circular for Series EE Bonds, issued January 1980 and
thereafter (Title 31, Code of Federal Regulations, Part 351). Public Debt Series No. 2-80—Offering
Circular for Series HH Bonds (including exchange offering), issued January 1980 and thereafter (Title
31, Code of Federal Regulations, Part 352). Public Debt Series No. 3-80—Governs United States
Savings Bonds of Series EE and HH (Title 31, Code of Federal Regulations, Part 353).

Series I:

Public Debt Series No. 1-98—Offering Circular for Series I Bonds issued September 1998 and
thereafter in denominations of $50, $75, $100, $500, $1,000, and $5,000 and for Series I Bonds
issued May 1999 and thereafter in denominations of $200 and $10,000 (Title 31, Code of Federal
Regulations, Part 359). Public Debt Series No. 2-98—Governs United States Savings Bonds of Series
I (Title 31, Code of Federal Regulations, Part 360).



References to Department of the Treasury circulars hereafter will be to the current edition and will
be abbreviated, such as DC 530 and DCPD 3-80. References to the Code of Federal Regulations will
be by title number and section number, for example, 31 CFR 315.25.

Wherever in the text references to bonds indicate that the securities being referred to are of the accrual
type, the term "bonds" includes United States Savings Notes.

References to Internal Revenue Service Rulings will be to the Cumulative Bulletin for the year in
which the ruling was issued. For example, Revenue Ruling 143 for 1954, appearing in Volume 2 of
the Cumulative Bulletin for 1954 at page 12, would be cited as Rev. Rul. 54-143, 1954-2 C.B. 12.

Copies of current Treasury circulars may be obtained from any of the five Federal Reserve Banks or Branches listed
below, or from the Savings Bond Operations Office, Parkersburg, WV 26106-1328. Internal Revenue materials
should be obtained from the Office of the District Director, Internal Revenue Service.

Federal Reserve Offices That Provide Savings Bond Services
Servicing Office Reserve Districts Served Geographic Area Served
Buffalo Branch
Federal Reserve Bank
P.O. Box 961
Buffalo, NY 14240-0961

716/849-5165
New York and Boston CT, MA, ME, NH, NJ
(northern half), NY, RI,
VT, Puerto Rico, and
Virgin Islands.
Pittsburgh Branch
Federal Reserve Bank
P.O. Box 299
Pittsburgh, PA 15230-0299

412/261-7800
Cleveland and Philadelphia



DE, KY (eastern half), NJ
(southern half), OH, PA,
and WV (northern

panhandle).
Federal Reserve Bank of Richmond
Savings Bond Operations
P.O. Box 85053
Richmond, VA 23285-5053

804/697-8370
Richmond and Atlanta AL, DC, FL, GA, LA
(southern half), MD, MS
(southern half), NC, SC,
TN (eastern half), VA, and
WV (except northern
panhandle).
Federal Reserve Bank of
Minneapolis
P.O. Box 214
Minneapolis, MN 55480-0214

612/204-5000
(ask for "Savings Bond area")
Minneapolis and Chicago IA, IL (northern half), IN
(northern half), MI, MN,
MT, ND, SD, and WI.
Federal Reserve Bank of
Kansas City
P.O. Box 419440
Kansas City, MO 64141-6440

816/881-2919
Dallas, San Francisco,
Kansas City,
and St. Louis
AK, AR, AZ, CA, CO, HI,
ID, IL (southern half), IN
(southern half), KS, KY
(western half), LA
(northern half), MO, MS
(northern half), NE, NM,
NV, OK, OR, TN (western
half), TX, UT, WA, WY,
and Guam.



Contents

Income Tax Status 1

The Education Tax Exclusion 2

Shifting of Income Tax Liability 3

Handling of Bonds Upon Death of Owner/Coowner/Beneficiary 5

Federal Estate Tax 12

Federal Gift Tax 16

State Gift Tax 18

State Inheritance Tax 18

Verifying Holdings 18

Payment to Other Than Registered Owner 19

Payments to Minor 20

Series HH Bond Exchange Privilege 20

Partial Redemption 21

Lost, Stolen, Destroyed, or Mutilated Bonds 21

Limitation on Transfer or Pledge 22

Limitation on Judicial Proceedings 22

Chain Letter Schemes 23

Miscellaneous Provisions 23

1

Income Tax Status


The interest on all United States securities issued since March 1, 1941, is subject to Federal income

tax. However, the interest is exempt from any taxation of income by a state, municipal, or local taxing
authority.

Regulations under the Interest and Dividend Tax Compliance Act of 1983 require that the taxpayer
identifying number of the person presenting a savings bond/note for payment be furnished at the time
of redemption. For individuals, this is their social security number. Savings bonds will not be
redeemed if the payee's taxpayer identifying number is not furnished. In addition, Series HH bonds
will not be issued unless the owner provides the certification of taxpayer identifying number required
by IRS regulations. (See IRS Form W-9.) Under certain conditions, interest paid on savings bonds
may be subject to backup withholding under the Act.

Series E, EE, and I Bonds, and Savings Notes (Freedom Shares)

The difference between the purchase price of a Series E/EE/I bond or savings note and its redemption
value is considered interest under the Internal Revenue Code.

If a taxpayer is on the accrual basis for income tax purposes, the interest on Series E/EE/I bonds and
savings notes must be reported as income each year.

If a taxpayer is on a cash basis, however, one of two methods may be chosen in accounting for the
interest on the securities. They are:

. defer reporting of interest until the year in which the Series E/EE/I bonds or savings
notes are cashed, disposed of, or reach final maturity, whichever occurs first, or

. report interest each year as it accrues.

If a taxpayer elects to report the interest as it accrues, all interest accrued and not previously reported
on all appreciation-type securities owned must be included as income for the tax year in which the
election is made. Once the election to report interest as it accrues has been made, a taxpayer cannot

switch to deferring reporting the interest without prior notification to the Internal Revenue Service.
This change is exempt from the fee for filing IRS Form 3115 (See 26 CFR 1.454-1, Rev. Proc. 89-46).

Series H and HH Bonds

Interest on Series H and Series HH bonds is paid semiannually by check or by direct deposit, and must
be reported annually for Federal income tax purposes. Direct deposit is mandatory for bonds issued
since October 1, 1989.


2
Income Tax Liability on Bonds/Notes Registered in Coownership Form

The accompanying table indicates the Federal income tax liability on savings bonds/notes registered in
coownership form and cashed during the lifetimes of both coowners - regardless of which coowner
cashes Series E/EE/I bonds or savings notes, or receives the interest on Series H or Series HH bonds.

How Purchased

"A" buys bond in name of "A" and
"B" coowners

"A" and "B" buy bonds in coownership
each contributing part of the purchase
price

"A" and "B" receive bonds in coownership
as a gift from "C"
Who is Liable for TAX*

Interest is income to "A" as the person who
contributed the purchase price

Interest is income to both "A" and "B" in
proportion to their contributions to the purchase
price

Interest is income to both "A" and "B"
- 50 percent to each owner
* Also applies to tax-deferred Series E/EE bond and note interest, as noted on Series H/HH bonds
received in exchange.

The Education Tax Exclusion


The Technical Corrections and Miscellaneous Revenue Act of 1988 amended the Internal Revenue
Code of 1986 to provide a new section 135 (26 USC 135) which authorizes a special tax exclusion of
the interest income from savings bonds issued after December 31, 1989 (Series EE and I bonds) and
redeemed in a year in which qualified owners pay offsetting post-secondary educational expenses. The
general provisions of section 135, including restrictions, are outlined below.

To qualify for the interest exclusion, the bonds must be of Series EE issued after December 31, 1989,
or Series I bonds. The bonds must be issued to individuals who are at least 24 years old on the first
day of the month in which the bonds are issued and redeemed in the year in which the owner pays
qualified post-secondary educational expenses of the owner, the owner's spouse, or the owner's
dependent. If the bonds are intended to help pay for the educational expenses of dependent children,
the parent will be able to benefit from the tax exclusion only if the bonds are issued in either one
parent's name or both parents' names. To be eligible for the exclusion, bonds cannot be issued in the
name of a child, although the child may be the registered beneficiary. Qualified educational expenses
include tuition and fees to an eligible educational institution. Room, board, and books are not

qualified educational expenses. Eligible educational institutions include colleges, universities, technical
institutes, and vocational schools within the United States.

For tax years starting after December 31, 1997, “The Taxpayer Relief Act of 1997” enacted August 5,
1997, added contributions to qualified State tuition programs to the definition of qualified higher
education expenses. This means that if a taxpayer redeems his or her savings bonds and pays the
proceeds into a qualified State tuition program, all or part of the interest earned on the bonds
redeemed may be eligible for exclusion from the taxpayer’s modified adjust gross income (MAGI)

3
for that year as long as all applicable requirements of the tax regulations are met. In other words,
contributing eligible savings bond proceeds to a qualified State tuition program is treated in the same
manner as payment of those proceeds to a qualified higher education institution.

Subject to other limitations outlined in this section, particularly the income limits referred to below,
the interest on qualifying bonds will be fully exempt from Federal income tax only if the qualifying
tuition and fees paid during the year are equal to or more than the redemption proceeds (principal and
interest) of qualified bonds, regardless of how the qualifying bond proceeds are actually used. If
tuition and fees are less than the value of the bonds cashed, the exemption is proportional to the
percentage of the value that was used for tuition and fees. For example, if $10,000 worth of bonds
are redeemed during the year, but tuition and fees total only $8,000, 80 percent of interest income is
exempt from Federal income tax.

Income limits apply to the taxpayer's modified adjusted gross income in the year bonds are redeemed
and tuition is paid. These income limits are adjusted annually for inflation and can be found in the
instructions on the IRS Form 8815 for the tax year involved. Modified adjusted gross income includes
the bonds' accumulated interest before exclusion. Married taxpayers must file a joint return to be
eligible for the exclusion.

The Internal Revenue Service has issued Form 8818 to assist taxpayers in keeping records of bonds

that may qualify for the interest exclusion. IRS Form 8815 should be filed in the year the exclusion is
being claimed. To obtain copies of the forms and to get additional information on the exclusion,
taxpayers should call or write their district IRS office.

Shifting of Income Tax Liability


A change in the registration of a savings bond that does not change its ownership will not result in a
shifting of income tax liability. This means that if the original sole owner of a bond has it reissued to
add the name of another person as coowner or beneficiary, the transaction is not considered a
disposition that requires the owner to include in his or her gross income the accrued interest on the
bond. (Rev. Rul. 64-302, 1964-2 C.B. 170; Rev. Rul. 58-2, 1958-1 C.B. 236.) Note, however, that
regulations governing Series I bonds do not permit reissue to eliminate the name of a living owner or
coowner from an I bond’s registration unless the owner or at least one of the coowners is obtaining a
divorce from his or her spouse or the marriage of the owner or at least one of the coowners is being
annulled. (See Sections 360.22 and 360.47 in DCPD 2-98.)

Similarly, if a Series EE savings bond is registered in the name of the person who furnished the funds
for its purchase and in the name of another person as coowners and the bond is reissued to eliminate
the name of that other person (the one who did not provide the money to buy the bond) no
disposition or taxable event has occurred. (Rev. Rul. 68-61, 1968-1 C.B. 346.)

If the name of a living person liable for income tax on an eligible Series E/EE/I bond or savings note is
removed, the change in registration is considered a disposition of the bond. (See "Income Tax
Liability on Bonds/Notes Registered in Coownership Form," page 2.) For the tax year of the
disposition, the accrued interest must be reported as part of the gross income of the person whose
name is removed. See Rev. Rul. 55-278, 1955-1 C.B. 471, which discusses the tax aspects of

4
making a gift of Series E bonds. When a taxable disposition occurs in a reissue transaction, the

reporting and backup withholding provisions of the Internal Revenue Code apply even though no
interest payment is received by the former owner.

Here are some examples:

. Exchange of Series EE for Series HH

The sole owner of Series EE bonds exchanges them for Series HH bonds. The Series HH bonds are
issued in the owner's name and that of another individual as coowner.

The change in registration is not a disposition that requires the original owner of the EE bonds to
include in his or her gross income the accrued interest on those bonds. The owner has the privilege of
continuing to defer reporting the accumulated interest on the Series EE bonds until the tax year in
which the Series HH bonds are redeemed, are disposed of, or have reached final maturity, whichever is
earlier. (Section 1037(a), Internal Revenue Code of 1986 as amended; 31 CFR 352.7(g).) The
original owner of the Series EE bonds must be the owner or the first-named coowner of the Series HH
bonds, and he or she is required to include in his or her gross income all of the Series HH bond interest
paid semiannually. (Note: No exchange of I bonds for other series of savings bonds is permitted
under the governing regulations.)

. Transfer of Bond through Death of Owner

An individual buys a savings bond with a nephew named as coowner (or beneficiary). The purchaser
dies after several years; the nephew becomes sole and absolute owner of the bond.

The death of the original owner does not result in a taxable event for Federal income tax purposes.
The income tax liability for the accumulated interest would pass along with the bond to the nephew
and would remain his along with liability for additional accruals. (See Rev. Rul. 64-104, 1964-1 C.B.
223.) However, if the person filing the final income tax return of the decedent elects to include all
interest earned on all bonds owned by the decedent to the date of the decedent's death, the nephew's

tax liability would extend only to the interest accruing from that date. (See Rev. Rul. 68-145, 1968-1
C.B. 203.)

The tax liability would be the same if the purchaser in this example had bought the bond in his or her
name alone, and the nephew had received the bond as a specific legacy and had it reissued in his name.
However, if the bond were received not as a specific legacy, but as a settlement of a specific dollar
legacy, then the legal representative of the estate for Federal income tax purposes would report the
accrued interest up to the time of distribution. The nephew would assume income tax liability for the
interest accruing after reissuance. In most cases where the bonds are part of a distributive share, the
tax liability for the accrued interest simply passes on to the heirs or legatees.


. Reissues from Parent to Child

A parent who has bought and held a Series E or Series EE bond for several years decides to make a
gift of it to his or her child. The bond is reissued in the child's name alone, or with the parent or

5
someone else as beneficiary. Such a reissue is a taxable event. Any accrued interest would have to
be included in the gross income of the parent for the taxable year in which the reissue took place. The
interest accruing thereafter would be the liability of the child for income tax purposes. (See Rev. Rul.
54-327, 1954-2 C.B.50.) (Regulations do not permit this reissue for I bonds. See Section 360.47 of
DCPD 2-98.)


. Transfer of a Bond to a Trust

Upon the reissuance of bonds to a trust, the owner must include in gross income the accumulated
interest on the bonds, including any tax-deferred increment noted on the Series H/HH bonds, unless,
under the grantor trust provisions of the Internal Revenue Code, the owner of the bonds is treated as

the owner of the portion of the trust represented by the tax-deferred accumulated interest on the
reissued bonds. If the bondowner is treated as the owner of that portion, the accumulated interest
continues to be income of the bondowner rather than of the trust and, therefore, the bondowner can
continue to defer reporting the interest earned each year. The bondowner must include the total
accumulated interest in gross income for the tax year in which the bonds are redeemed, otherwise
disposed of, or reach final maturity, whichever is earlier. These rules apply when bonds being reissued
are Series E/EE/I bonds or savings notes or when bonds being reissued are Series HH bonds received
in exchange for Series E/EE bonds or savings notes.

NOTE: In the foregoing examples, it is assumed that all persons are on the cash reporting basis and
have not elected to report their bond interest annually as it accrues. Most taxpayers use the cash
method of accounting. Additional information, and letter rulings, may be obtained by writing to:
Internal Revenue Service, Associate Chief Counsel (Domestic), Attention CC:CORP:T, P. O. Box
7604, Ben Franklin Station, Washington, DC 20044. Contact that office for instructions on the
information to be submitted in connection with a letter ruling request.

Handling of Bonds Upon Death of Owner/Coowner/Beneficiary


Savings bonds owned by natural persons may be registered in one of three forms - one person as sole
owner, two persons as owner and beneficiary, or two persons as coowners. Procedures to follow in
the event of death of the owner, coowner, or beneficiary are described here for each type of
registration. In all cases, appropriate evidence may include: certified copies of death certificates;
certified copies of letters of appointment; and/or, certified copies of final accounts and court decrees
and orders.

One Person as Sole Owner:

A bond registered in the name of one individual only (or to which the decedent was the sole person
entitled at the time of death) becomes a part of the estate on the death of the owner. (See Section

315.70(a) of DC 530, Section 353.70(a) of DCPD 3-80, and Section 360.70(a) of DCPD 2-98.) In
such cases, the bond will be paid or reissued upon the request of the legal representative of the
decedent's estate, in accordance with Treasury regulations. The procedure to be followed will depend
on whether the estate is administered and whether the bonds are of Series I or of another series, such
as, E, EE, H, or HH.

6

. In the course of administration

If the estate is being administered, the bond may be paid to the representative or reissued in the name
of a distributee. (See Section 315.71(a) of DC 530, Section 353.71(a) of DCPD 3-80, and Section
360.71(a) of DCPD 2-98.) For Series I bonds, the representative should use Public Debt Form 5394
to request redemption or reissue of bonds of that series. He or she should follow instructions on the
form and provide any supporting evidence and forms indicated in those instructions.
For savings bonds of other series and savings notes, the representative’s requests for payment should
be supported by evidence of the representative's authority and can be submitted to any financial
institution qualified as a savings bonds paying agent. On the back of each bond in the estate, the
representative’s signature in each request for redemption should include a reference to the fiduciary
capacity and should be certified or guaranteed if the agent opts not to redeem the bonds and instead
elects to forward the bonds unpaid to a servicing Federal Reserve Office for redemption.
Representatives requesting reissue should file Public Debt Form 1455 along with evidence of the
representative's authority. If the new owner desires to name a coowner or beneficiary, an additional
request on Public Debt Form 4000 should be executed. (This can be a simultaneous transaction if
both forms are submitted with the bond to a servicing Federal Reserve Bank or Branch.) The
representative’s evidence of authority should be certified to be true and correct under seal of the court
clerk and should be dated within 6 months of the transaction if more than a year has passed since the
representative’s appointment.

. After administration is closed

If the decedent’s estate has been settled in court, the bond will be paid to, or reissued in the name of,
the appropriate heir or legatee as determined by court records. (See Section 315.71(b) of DC 530,
Section 353.71(b) of DCPD 3-80, and Section 360.71(b) of DCPD 2-98.) Persons entitled to Series I
bonds should use Public Debt Form 5394 and follow procedures in instructions on that form.

For savings bonds of other series and savings notes, the persons entitled to the decedent’s estate may
execute the requests for payment on the backs of the bonds or use a detached request for payment
(Public Debt Form 1522). If reissue is desired, the heirs should execute Public Debt Form 4000.
Requests for either payment or reissue should be supported by evidence of the court's determination,
e.g., a certified copy of the court-approved final account for the estate, the court’s decree of
distribution, or other pertinent court records.

. Without administration

For Series I bonds, if no legal representative of the decedent's estate has been or will be appointed,
persons entitled should use Public Debt Form 5394 and follow procedures in instructions on that form.
(See Section 360.72 of DCPD 2-98.)

For savings bonds of other series and savings notes, the bonds may be paid or reissued pursuant to an
agreement signed by all persons entitled to share in the estate (Public Debt Form 5336 for all series of
savings bonds, except Series I bonds.). Such persons are determined in accordance with state law.
Payment of outstanding debts can also be accomplished in this manner, but bonds may not be reissued
in the name of a creditor. (See Section 315.72 of DC 530 and Section 353.72 of DCPD 3-80.)

7

. Special provisions for payment of small amounts

If there is no legal representative of the decedent's estate, bonds will be paid upon the request of the

person who paid the decedent's burial expenses in certain circumstances. For Series I bonds, use
Public Debt Form 5394 and follow instructions on that form. (See Section 360.72(b)(11) of DCPD
2-98.) For savings bonds of other series and savings notes not exceeding $500 face amount, use
Public Debt Form 2216. (See Section 315.72(d)(1) of DC 530 and Section 353.72(d)(1) of DCPD
3-80.)

If the decedent died without leaving a will, and no legal representative of his or her estate has been or
will be appointed, bonds (other than bonds of Series I) and notes not exceeding $1,000 in face amount
may be paid pursuant to the request of the survivors based on an order of precedence (Public Debt
Form 4881). (See Section 315.72(d)(2) of DC 530 and Section 353.72(d)(2) of DCPD 3-80.) For
Series I bonds, Public Debt Form 5394 should be used. (See Section 360.72 of DCPD 2-98)

Two Persons as Owner and Beneficiary:

When a bond is registered in the name of one individual with a second person as beneficiary, the death
of the owner results in the surviving beneficiary becoming the sole and absolute owner of the bond.
However, the beneficiary must provide proof of death of the owner in order to cash the bond or have
it reissued. (See Section 315.70(c) of DC 530, Section 353.70(c) of DCPD 3-80, and Section
360.70(c) of DCPD 2-98.) For Series E and Series H bonds and notes, if the beneficiary dies first, the
owner may, upon submitting proof of the beneficiary's death, have the bond reissued to name another
beneficiary or coowner. Proof of the beneficiary’s death is not required in the case of Series EE/HH/I
bonds (See Section 353.51 of DCPD 3-80 and Section 360.51 of DCPD 2-98). If the bond is not
reissued, it will be treated as though it had been registered in the name of one person as sole owner.

Two Persons as Coowners:

When a bond is registered in the name of two individuals as coowners, upon the death of one, the
surviving coowner becomes the sole and absolute owner of the bond. If the decedent bought
the bond, the Federal income tax liability on the interest earned to date of death ordinarily shifts to the
survivor. The bond may:

1. be redeemed.

2. be reissued. Proof of death of the other coowner and a request on an appropriate
form—Public Debt Form 5387 for Series I bonds, and Public Debt Form 4000 for
savings bonds of other series and savings notes—are required.

3. be retained without reissue. If the bond is not reissued, it will be treated as if it had
been registered in the name of the survivor alone. (See Section 315.70(b)(1) of DC
530, Section 353.70(b)(1) of DCPD 3-80, and Section 360.70(b)(1) of DCPD 2-98.)

8

Death in Common Disaster

If both coowners should die under conditions where it cannot be established, either by presumption of
law or the circumstances surrounding their deaths, which coowner died first, the bond is considered as
belonging to the estates of both equally, and payment or reissue is made accordingly. (See Section
315.70(b)(3) of DC 530, Section 353.70(b)(3) of DCPD 3-80, and Section 360.70(b)(3) of DCPD
2-98.) If both owner and beneficiary should die under the above conditions, the bond is treated as
though it were registered in the owner's name alone, and payment or reissue is made accordingly. (See
Section 315.70(c)(2) of DC 530, Section 353.70(c)(2) of DCPD 3-80, and Section 360.70(c)(2) of
DCPD 2-98.)

NOTE: Banks and other paying agents are permitted, but not required, to redeem bonds in certain
cases where documentary evidence is required - such as death certificates, letters of appointment, etc.
(See 31 CFR 321.7.)

Rights of Survivors - Bonds Not Subject to Probate of Decedent’s Estate

The legal representative of a decedent's estate should be aware of the rights of surviving coowners and
beneficiaries. Savings bonds registered in either coownership or beneficiary form become the sole
property of the survivor, notwithstanding any terms of a will to the contrary, or any laws of descent
and distribution. The bonds do not pass through the decedent's estate, whether or not it is
administered. Although they do not form a part of the decedent's estate for PROBATE purposes,
their value usually must be included in computing the gross estate for estate and inheritance TAX
purposes.

9
Redemption - Deceased Owner Cases
For full details: See Treasury Circulars No. 530, Subpart L and PD Series No. 3-80, Subpart L. This chart
covers all series. Exceptions for Series I bonds are noted. Also, see Treasury Circular, PD Series No. 2-98,
Subpart K.
Bond Inscription and
Circumstances
Form of Request
for Payment
Evidence Normally
Required
Single owner form; owner
deceased; estate being
administered
John Doe,
administrator (executor) of
estate (will) of
Richard Roe, deceased
Certified copy of letters of
administration (For Series I
bonds, see Public Debt Form
5394*)

Coowner or beneficiary
form; both persons deceased;
estate of person who died
last being administered.
John Doe, administrator
(executor) of estate (will) of
Richard Roe (name of last
deceased)
Certified copy of letters of
administration for last
deceased and death
certificates of both (For
Series I bonds, see Public
Debt Form 5394*.)
Single owner form; owner
deceased; estate closed.*
John Doe, person entitled to
estate of Richard Roe,
deceased
Certified copy of decree of
distribution or final account
(For Series I bonds, see
Public Debt Form 5394)
Coowner or beneficiary
form; both persons deceased
and estate of last deceased
closed.*
John Doe, person entitled to
estate of Richard Roe (name
of last deceased)

Certified copy of decree of
distribution or final account,
and certified copies of death
certificates of both (For
Series I bonds, see Public
Debt Form 5394)
Single owner, coowner, or
beneficiary form; all persons
deceased; estate of last
deceased will not be
administered.*
Request should not be
executed.
For Series I bonds, Public
Debt Form 5394 should be
used by persons entitled.
Persons entitled to savings
bonds of other series and
savings notes should use
Public Debt Form 5336,
Public Debt Form 4881, or
Public Debt Form 2216, as
appropriate. Certified copies
of death certificate(s) and an
unprobated will of the last
deceased may be required.
See instructions on the
appropriate form.
* Paying agents are not authorized to redeem bonds in these cases. Bonds should be forwarded to a
Federal Reserve Bank or Branch for payment.

10

Reissues - Deceased Persons
For full details: See Treasury Circulars No. 530, Subpart L, and PD Series No. 3-80, Subpart L. This chart covers all
series. Exceptions for Series I bonds are noted. (See Treasury Circular, PD Series No. 2-98, Subpart K)
Bond Inscription
and Circumstances
Request for Reissue Evidence Form Number
Single owner form;
owner deceased,
estate being
administered and
representative still
acting
In name of person
entitled to estate
(request made by
court-appointed
representative)
For Series I bonds,
see Public Debt Form
5394.
For savings bonds of
other series and
savings notes:
certified copy of
letters testamentary or
of administration or,
Public Debt Form

2488-1 if face amount
of bonds totals $1,000
or less.
For Series I bonds,
Public Debt Form
5394 should be
used.
For savings bonds
of other series and
savings notes,
Public Debt Form
1455 should be
used.
Coowner or
beneficiary form; one
person deceased
In name of survivor
alone or in name of
survivor with
another person as
coowner or
beneficiary (request
made by survivor)
For Series I bonds,
see Public Debt Form
5387.
For savings bonds of
other series and
savings notes:
certified copy of death

certificate. Series EE
and HH bonds - no
evidence necessary
if decedent is
beneficiary.
For Series I bonds,
Public Debt Form
5387 should be
used.
For savings bonds
of other series and
savings notes: use
Public Debt Form
4000.


11

Reissues - Deceased Persons (continued)
Bond Inscription
and Circumstances
Request for Reissue Evidence Form Number
Coowner or
beneficiary form; both
deceased, estate of last
to die being
administered,
representative acting
In name of person
entitled to estate of

person last deceased
(request made by
court-appointed
representative)
For Series I bonds, see
Public Debt Form 5394.
For savings bonds of
other series and savings
notes: certified copies
of death certificates of
both decedents, AND
certified copy of letters
testamentary or of
administration on estate
of person last deceased,
or Public Debt Form
2488-1 if face amount
of bonds totals $1,000
or less,.
For Series I bonds,
Public Debt Form
5394 should be used.
For savings bonds of
other series and
savings notes, Public
Debt Form 1455
should be used.
Single owner form;
owner deceased, estate
administered and

closed and
representative
discharged
Name of person
entitled either alone or
with coowner or
beneficiary
For Series I bonds, see
Public Debt Form 5394.
For savings bonds of
other series and savings
notes: certified copy of
decree of distribution
or final account or,
Public Debt Form 2458
if face amount of bonds
totals $1,000 or less.
For Series I bonds,
Public Debt Form
5394 should be used.
For savings bonds of
other series and
savings notes: Public
Debt Form 4000 or
special form of
agreement if more
than one person
entitled.

12

Reissues - Deceased Persons (continued)
Bond Inscription
and Circumstances
Request for Reissue Evidence Form Number
Single owner,
coowner, or
beneficiary form; all
persons named
deceased; estate of last
decedent will not be
administered
Name of person
entitled to bonds either
alone or with coowner
or beneficiary
For Series I bonds, see
Public Debt Form 5394.
For savings bonds of
other series and savings
notes: agreement by all
persons entitled to
share in estate of bond
registrant who died last;
plus death certificate for
registrant who died
first, except if face
amount of bonds totals
more than $1,000, and

in that case, death
certificates of all named
on bonds. If last
deceased left a will, a
certified copy is
required.
For Series I bonds,
Public Debt Form
5394 should be used.
For savings bonds of
other series and
savings notes: use
Public Debt Form
5336.



Federal Estate Tax

An estate tax return (IRS Form 706) must be filed if the decedent's gross estate, including savings
bonds, exceeds the applicable filing limit for the year of the decedent's death. The filing limit is
reduced by the decedent's total lifetime post-1976 taxable gifts. For more details, see instructions for
IRS Form 706. You may also want to take a look at IRS Publication 950, "Introduction to Estate and
Gift Taxes", as well as IRS Publication 559, "Survivors, Executors, and Administrators." The estate
tax return is due within nine months after the decedent's death, unless an extension of time for filing is
granted.*

The fact that bonds automatically become the sole property of a coowner or beneficiary upon death of
the owner does not relieve the estate or surviving coowner or beneficiary of any possible estate and
inheritance tax liability.

* These rules apply to persons dying after 12/31/81. For persons who died prior to that date, contact
IRS for advice.


13

Who is Liable

Unlike an inheritance tax, which is imposed directly on each person entitled, the estate tax is levied
upon the entire estate of the decedent. Thus, the estate is primarily liable for the estate tax, including
estate tax attributable to any bonds owned by the decedent, even though they pass automatically to a
coowner or beneficiary. However, should the estate not pay the tax when due, the person who
received the bonds could be called upon to pay the tax to the extent of the value, at the time of the
decedent's death, of the savings bonds and other property received. (See Instructions for IRS Form
706.)

Determining Bond Values

When savings bonds form a part of the estate for tax purposes, the redemption value on the date of the
owner's death (or alternate valuation date, if elected) is the amount used in computing the gross estate.
Tables of redemption values for Series E, EE, and I bonds and savings notes (Public Debt Form
3600) may be obtained from the Savings Bond Operations Office, Parkersburg, WV 26106-1328. Be
sure to specify the month and year of death of the bondowner. On the Web, visit
www.savingsbonds.gov. The redemption value of a Series HH bond is the same as its face amount.

Deduction for Federal Estate Tax Previously Paid

Under certain conditions, it is possible for a taxpayer to take a deduction on his or her Federal income
tax return for a Federal estate tax paid that is attributable to interest on savings bonds included in a

decedent's estate for purposes of the estate tax. Assume, for example, that the taxpayer acquired the
bonds either as surviving coowner, beneficiary, or distributee of the estate of a cash basis taxpayer
who had not elected to report the interest annually. At such time as the accrued interest on the bonds
is reported as income, the taxpayer would be entitled to claim a deduction on his or her Federal
income tax return for the portion of the paid estate tax that was for interest accrued during the
decedent's lifetime.


14

In the examples below, "A" and "B" are not husband and wife (spouses) unless specified.
Source of
Funds
Form of
Registration
Gift Tax Estate Tax
"A" "A" or "A"
payable on death
to "B"
None. Result is the same
if "A" and "B" are
spouses.
Included in
gross estate upon
death of "A". (If
"B" dies first, not
subject to estate
tax on his or her
estate.) Result is
the same if "A"

and "B" are
spouses.
"A" "A" or "B" None in year of purchase.
If "A" permits "B" to
obtain and retain
redemption value during
"A's" lifetime, "A" will be
liable for the gift tax on
the redemption value of
the bond in the calendar
year in which the
redemption occurred. If
"A" permits "B" to cash
an interest check on a
Series H/HH bond and
retain the proceeds, he or
she will be liable for any
gift tax in the year in
which the check is cashed.
(Interest on Series HH
bonds issued from
October 1, 1989, is paid
by direct deposit.) If "A"
and "B" are spouses, there
is no gift tax liability upon
purchase or redemption.
But where the donee
spouse is not a United
States citizen, the
available marital deduction

is limited to $100,000 per
calendar year.
Redemption value
of the bond subject
to estate tax
liability upon "A's"
death, but not
subject to estate
tax on death of
"B", if "A" is still
living. If "A" and
"B" are spouses,
half the value of
the bonds is
included in the
gross estate of the
first to die.
However, if "A"
dies first and "B" is
not a United States
citizen, the total
value of the bonds
is included in "A's"
estate. If "B" dies
first and "A" is not
a United States
citizen, no part of
the value of the
bonds is included
in "B's" estate.

15

Source of
Funds
Form of
Registration
Gift Tax Estate Tax
"A" "B" or "B" payable
on death to "A"
"A" is liable for gift tax in
the year of purchase for the
cost of the bond. If "A" and
"B" are spouses, there is no
gift tax liability. However,
in cases where the donee
spouse is not a United
States citizen, the available
marital deduction is limited
to $100,000 per calendar
year.
Redemption value is
includable in "B's" gross
estate. (If "A" dies first, not
subject to estate tax on his or
her estate.) Result is the
same if "A" and "B" are
spouses.
"A" and "B" "A" or "A" payable

on death to "B"
"A" has no gift tax liability.
"B" is liable for gift tax in
year of purchase on the
amount he or she
contributed.
Upon "A's" death, the
redemption value is
includable in "A's" gross
estate for estate tax
purposes. No estate tax on
death of "B", if "A" is still
living. Result is the same if
"A" and "B" are spouses.


16
Source of
Funds
Form of
Registration
Gift Tax Estate Tax
"A" and "B" "A" or "B" Neither "A" nor "B" has gift tax
liability in the year of purchase.
Should either permit the other,
during the lifetime of both, to
obtain and retain the
redemption value of the bond,
the other would have a gift tax
liability in the year of

redemption for that portion of
the redemption value that
represents the proportion of the
purchase price he or she
furnished. If the interest check
on a Series H/HH bond is not
divided between "A" and "B" in
proportion to their
contributions to the purchase
price, the one who permits the
other to retain more than his or
her proportionate share will be
liable for gift tax on the amount
due him or her which he or she
permits the other to retain.
(Interest on Series HH bonds
issued from October 1, 1989, is
direct deposited to a single
designated account.) If "A" or
"B" are spouses, there is no gift
tax liability in either of the
above situations. However, if
the donee spouse is not a
United States citizen, the gift
tax marital deduction is limited
to $100,000 per calendar year.
Upon death of either
"A" or "B" that
portion of
redemption value on

date of death
proportionate to
decedent's
contribution to
purchase price would
be includable in his
or her gross estate
for estate tax
purposes. If "A" and
"B" are spouses, half
the redemption value
of the bonds is
included in the gross
estate of the first to
die regardless of the
relative contributions
of "A" and "B".
However, if the
survivor of "A" and
"B" is not a United
States citizen, that
portion of the
redemption value on
the date of death
proportionate to the
survivor's
contribution to the
purchase price would
be excludable from
the decedent's gross

estate.

Federal Gift Tax

A gift tax return (IRS Form 709) must be filed by the donor if gifts are made, including savings
bonds, of more than $10,000 to any donor during the calendar year. There is also a unified estate and

17

gift tax credit over and above this $10,000 annual exclusion of gifts to each donor. This credit must
be applied against any gift taxes due on gifts to any number of donors until it is exhausted. A gift of
savings bonds, either by purchase in the name of the donee as owner or by way of authorized reissue,
like similar transfers of other property, is subject to Federal gift tax. (See Instructions for IRS Form
709.) In the case of reissue of savings bonds, the redemption value at the time that the gift is made is
used in determining the amount of the gift.

Who is Liable

The tax is imposed on the donor. However, should the donor fail to pay the tax when due, the donee
may be called upon to discharge the liability to the extent of the value of any bonds or other property
received. (See 26 CFR 301.6324-1(b).)

Filing Requirements

Generally, if a gift, including savings bonds, to anyone other than a spouse exceeds $10,000 per
individual per year, the gift tax return must be filed for that calendar year. The gift tax return is due
the April 15 following the close of the year in which the gift was made.

Gift Splitting

A husband and wife may "split" a gift to a third person to get the benefit of their combined gift tax
exemptions. For example, one spouse could give $20,000 in savings bonds to a third person without
exceeding each spouse's $10,000 annual exemption and thus without paying a gift tax. Both husband
and wife must signify their consent to such gift splitting on gift tax returns required to be filed.* If
gifts exceed total exemptions and tax is due, it may be paid out of the funds of either spouse.

* The spouses may be able to file using IRS Form 709-A, United States Short Form Gift Tax Return,
which is easier to complete than IRS Form 709.

Marital Deduction

Husbands and wives are not liable for gift taxes on gifts made from one to the other, subject to certain
limitations and conditions (See Instructions for IRS Form 709.)

Federal Estate and Gift Tax Liability According to Source of Funds and Form of Registration*

All material contained in the table assumes two things - that no exchange of money or money's worth
has occurred between those persons whose funds purchased the bonds and those named in the
registration, either before or after purchase; and that the value of the bonds involved is sufficient in
all cases to bring the gift or estate within the provisions of applicable laws or regulations. Also, in all
cases where the registration includes two persons in any capacity, these answers relate only to the
situation upon the death of the first decedent.

* Rev. Rul. 68-269, 1968-1 C.B. 399

18
State Gift Tax


Savings bonds are not subject to state gift tax.

State Inheritance Tax


The transfer of ownership of savings bonds resulting from the death of the owner is subject to state
inheritance and estate tax. In the case of coowner bonds, many states follow the rule applied under
the Federal estate tax provisions by measuring each coowner's taxable interest in the bonds by the
amount contributed to the purchase price.

Other states treat the bonds as held in equal shares by each coowner and require that one-half of their
value be reported as part of the gross estate of the coowner first to die, regardless of whose funds
purchased the bonds. For complete details, consult your state tax authorities.

Verifying Holdings


Persons representing a decedent's estate often ask how they may verify or complete an inventory of the
decedent's savings bonds holding. The Bureau of the Public Debt will attempt to assist those entitled
to such information. A request for information—explaining the reason for the request— should be
sent to the Savings Bond Operations Office, Parkersburg, WV 26106-1328.

Ordinarily, a copy of the legal representative's letters of appointment, certified under the seal of the
court of jurisdiction, will be sufficient for the release of detailed information regarding a decedent's
holdings.

The following information is helpful in making an effective search of savings bond records.

. The complete name, including middle name or initial, which appears first on the bonds,
together with information as to any other names appearing on the bonds.

. All addresses - street and number, city and state - which may be shown in the inscription on the
bonds.

. The series and denomination, if known, and the approximate dates - months and years - bonds
were purchased.

. Serial numbers, if known.

. Social security number, in the case of Series EE, H, HH, and I bonds, as well as Series E bonds
issued after January 1, 1974.

. A description (including serial numbers) of all savings bonds held by the legal representative or
persons entitled.

. Date of decedent's death.

19

Payment to Other Than Registered Owner

Persons other than registered owners and persons entitled under the regulations to be recognized as
owners ordinarily are not allowed to request and receive payment of the redemption value of savings
bonds. Under certain conditions, however, bonds will be paid to persons other than the registered
owner—provided requirements of the Treasury regulations are met. Here are some circumstances
under which payment is made to a nonowner.

Legal Representative of Estate

If the form of registration of a savings bond indicates that the owner is a minor, an incompetent, or an
absentee, payment will be made to the legal representative of the owner’s estate—for example,

guardian, conservator, committee, etc. Unless the bond registration includes the name of the
representative, documentary evidence of the right to represent the bondowner must be submitted. For
Series I bonds, documentary evidence would be Public Debt Form 5385 if redemption is being
requested and Public Debt Form 5386 if reissue is being requested. Paying agents are not authorized
to approve and complete transactions in which documents are required to establish the representative’s
authority to act for a living bondowner or coowner. However, paying agents are authorized to pay
bonds upon the request of legal representatives of decedents' estates even if the representatives are not
designated on the securities by name and title, provided they properly identify themselves, sign the
bonds in their legal capacity, and provide appropriate evidence. (See Section 315.60 of DC 530,
Section 353.60 of DCPD 3-80, Section 360.60 of DCPD 2-98, and Section 321.7(e) and (f) of DC
750.)

Attorney-in-fact

If the adult owner of a bond authorizes an attorney-in-fact to sell or redeem the grantor's securities, or
sell his or her personal property, or provides similar authority, and the power of attorney complies
with state law as to notarization or certification, payment will be made to the attorney-in-fact. If the
grantor becomes incapacitated, the power of attorney should comply with state law concerning
durability and in some way provide that the attorney-in-fact's authority is not affected by the grantor's
subsequent incapacity. A copy of the power of attorney must be submitted to support the transaction
request, and in the case of incapacity, medical evidence as to the grantor's condition may be required.
(See Section 315.40(d) of DC 530, Section 353.40(d) of DCPD 3-80, and Section 360.40(d) of
DCPD 2-98.)

Voluntary Guardian for Adult Incompetent

If the adult owner of a bond becomes unable to take care of his or her affairs and there is no person
legally qualified to act in his or her behalf, the relative responsible for support, or some other person,
may submit an application for recognition as voluntary guardian for the purpose of receiving interest
or of requesting redemption of bonds if the total redemption value of all of the owner's bonds does not

exceed $20,000. Use Public Debt Form 2513 to apply for voluntary guardianship. If the total
redemption value exceeds $20,000, the court having jurisdiction needs to appoint a representative for
the adult incompetent's estate. (See Section 315.64 of DC 530, Section 353.64 of DCPD 3-80, and
Section 360.64 of DCPD 2-98.)

20

Parent on Behalf of Minor

If the owner of a savings bond is a minor and the form of registration does not indicate that there is a
guardian or other representative, and if the minor owner is not of sufficient competency to sign his or
her name to the request for payment and to understand the nature of the transaction, payment will be
made to either parent with whom he or she resides or to whom legal custody has been granted. If
residence is not with a parent, payment may then be made to the person who furnishes the minor's
chief support. The request on the back of the bond should contain a certification by the parent or
other person explaining the basis on which the request for the minor is being made. (See Section
315.63 of DC 530, Section 353.63 of DCPD 3-80, and Section 360.63 of DCPD 2-98.)

Payments to Minor

If the owner of a bond is a minor and the registration does not indicate that there is a guardian or other
representative of his or her estate, payment will be made to the minor—provided the minor is of
sufficient competency to understand the nature of the redemption transaction and to write his or her
name on the back of the bond. (See Section 315.62 of DC 530, Section 353.62 of DCPD 3-80, and
Section 360.62 of DCPD 2-98.)

Series HH Bond Exchange Privilege

Series E and Series EE bonds—alone, or in combination with savings notes—may be exchanged, with
or without continued deferral of reporting accumulated interest for Federal income tax purposes, for

Series HH bonds. Series E/EE bonds and notes submitted in exchange must have a current
redemption value of $500 or more. Series E bonds and notes may be exchanged up to one year from
the month in which they reach final maturity dates. (Note: No exchange of I bonds for other series of
savings bonds is permitted under the governing regulations.)

Series HH bonds are issued at face amount and pay interest semiannually by direct deposit. Unless
owners have a need for current income, they should consider the matter carefully before making an
exchange, as they may find interest earnings on the Series HH bonds less than on the securities
exchanged.

Series HH bonds received in an exchange are not subject to the annual limitation on purchases. The
owner or “principal coowner” of Series E/EE bonds and savings notes exchanged must be the owner
or first-named coowner of the Series HH bonds received in the exchange. Otherwise the HH bonds
may bear a registration different from the Series E/EE bonds and notes exchanged, without the
permission of previous coowners or beneficiaries. The ‘‘principal coowner’’ is the coowner who
purchased the securities presented for exchange with his or her own funds, or received them as a gift,
inheritance or legacy, or as a result of judicial proceedings, and had them reissued in coownership
form, provided he or she has received no contribution in money or money’s worth for designating the
other coowner on the securities.


21

If a cash adjustment is received in an exchange, the amount received is interest income to the extent
that it represents unreported interest earned on the securities exchanged.

Use Public Debt Form 3253 to apply for an exchange. For full details, see Section 352.7 of DCPD
2-80 (31 CFR, Part 352).

Partial Redemption

A savings bond in a denomination larger than the smallest one of the same series may be redeemed in
part prior to maturity at current redemption value. For example, a $100 (face amount) Series EE bond
may be redeemed to the extent of a $50 (face amount) Series EE bond. The owner would receive a
check representing the redemption value of a $50 bond having the same issue date as the $100 bond
turned in. In addition, the owner would receive a bond with an issue date the same as the original
$100 bond and having a face value of $50. (See Section 315.41 of DC 530, Section 353.41 of DCPD
3-80, and Section 360.41 of DCPD 2-98.).)

Lost, Stolen, Destroyed, or Mutilated Bonds

All U.S. Savings Bonds are issued in registered form. When lost, stolen, mutilated, or destroyed, they
may be replaced without cost to the owner.

A record of bonds owned—with dates and serial numbers—will assist in identifying the bonds and
facilitate the issuance of duplicates. In the case of Series EE, H, HH, and I bonds, as well as Series E
bonds issued on or after January 1, 1974, taxpayer identifying numbers—Social Security Account
Numbers or, for owners that are not individuals (i.e., not natural persons) employer identification
numbers—should be included.

No claim filed six years or more after the final maturity date of a savings bond or note other than an I
bond will be accepted unless the serial number of the bond is furnished. Except for an I bond, any
savings bond or note for which no claim has been filed within 10 years after redemption will be
presumed to have been properly paid. (See Section 315.29 of DC 530 and Section 353.29 of DCPD
3-80.) Any claim filed 10 years or more after the recorded date of redemption or other retirement of
an I bond will be barred. Any claim filed 10 years or more after the final maturity of an I bond will be
barred. (See Section 360.29 of DCPD 2-98.)

Use Public Debt Form 1048 to apply for relief on account of lost, stolen, mutilated, or destroyed
bonds. (See Sections 315.25 and 315.26 of DC 530, Section 353.25 and 353.26 of DCPD 3-80, and

Section 360.25 and 360.26 of DCPD 2-98.).)

Both coowners of a bond, or the owner and beneficiary, must sign the application form. In the case of
a minor registrant not deemed able to understand the nature of the transaction, both parents or, if the
minor does not reside with his or her parents, the person furnishing chief support, must sign the
appropriate form.