You may have bought savings bonds thinking that you would redeem them for cash or reinvestment, however, bonds are often forgotten. Or, some people put off redemption because the accumulated interest normally will be taxable.
As the stock market has fluctuated, bonds have grown popular because of their security and steady return. Redeeming bonds can complicate your tax situation, so giving them as a charitable gift in your will may be a smart way to support a cause you believe in and relieve some of the tax burden on your estate.
If you own bonds, you probably do not declare the interest income as the value of the bond increases. The difference between a bond's purchase price and its value when redeemed is usually taxed when the bond is sold.
Unfortunately, bonds cannot be donated to a charitable organization during your lifetime. Instead, you can redeem the bonds and make a gift of cash. The redemption still triggers tax liability to you on the interest income. If you die owning savings bonds, the untaxed interest may be subject to a combination of estate and income taxes that could absorb as much as 65% of the untaxed interest.
Leaving the bonds to the chapter through your will, allows your estate to donate the full value of the bonds – qualifying your estate for relief from estate and income taxes. Another option is leaving the bonds, upon your death, to a charitable remainder trust to first benefit your loved ones with payments for their lifetimes and then the balance to the Society.
Currently, you cannot name a charitable organization as co-owner or beneficiary on the face of your bonds. So the best way to bypass the tax burden and make a charitable bequest is for your attorney to add a codicil to your will, or an amendment to your living trust, that leaves your bonds to the Society. This way we will receive 100% of the value of the bonds – and your family can receive other assets that won't trigger income taxes.
For more information on bequeathing savings bonds, please contact Karen.Barton@nmss.org at 760-448-8412.
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