After someone dies, the law generally says to transfer savings bonds after death to the beneficiary on the bond. The earnings on inherited savings bonds are not taxable to the heirs if the decedent already paid taxes on the accumulated interest, but heirs are responsible for paying any unpaid taxes.
How do I cash an inherited bond?
If the bonds are $100,000 or less and the estate has not been formally administered through court, the beneficiary can request to cash in the bond by mailing a signed and notarized FS Form 5336 with the bond and proof of death to the Bureau of Public Debt.
Do you have to pay inheritance tax on inherited bonds?
Even if your bond escapes estate tax, you might need to sell a portion of your inheritance to pay the state inheritance tax. Your inherited bonds receive a “step-up” in cost basis to their fair market value as of the day of the deceased’s death. The original cost basis is the amount the deceased paid for the bonds.
What happens to your money when you buy a municipal bond?
Essentially, when investors buy a municipal bond, they loan money to the bond’s issuer in exchange for a specified number of interest payments over a set period of time. The end of this time period is referred to as the bond’s maturity date, defined as when the investor’s full investment principal is returned.
Where can I get a municipal bond certificate?
However, many people receive municipal bonds through inheritance or as gifts. You might have physical possession of bond certificates; they might be held in safekeeping by a brokerage firm; or they might be stored electronically by the issuer.
What happens to the money you inherited from an inherited investment?
If the investment lost value compared to the cost basis, the loss can be used as a tax write-off. If the investments you inherited pay dividends or interest, that income will be yours once you officially own the securities. Stock or fund dividends or bond interest will be reported to you on a Form 1099 and included on your tax return.
