|
Bonds
In General
Funding Series E, EE, H, HH, &
I - U.S. Savings Bonds
Tips on Preparing the PDF 1851
Income Tax Issues
Confirming Accuracy of Funding
Municipal Bonds,
School District Bonds & Capital Improvement Bonds
Transfer on Death (TOD)
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: There
are a number of different types of bonds. The U.S. Treasury Department issues
government bonds such as Series E, EE, H, HH, & I bonds. Municipalities and school districts
can also issue bonds. Funding a bond begins with identifying the type of
bond you own.
Funding
Series E, EE, H, HH, & I U.S. Savings Bonds: U.S. Savings Bonds are funded
by preparing a governmental form from the Federal Reserve Bank called a PDF 1851.
Note that this form needs a Medallion Signature
Guarantee
in order for it to be accepted by the U.S. Treasury Department. For
assistance with completing the PDF 1851 and obtaining a Medallion
Signature Guarantee, we recommend that you consult an estate planning attorney with experience
in trust funding.
Tips on
Preparing the PDF 1851: There are several important issues you should
be aware of when preparing the PDF 1851. If the form is not completed
correctly, it will not be accepted by the Federal Reserve Bank and will be
returned to the sender.
NOTE: When preparing a PDF 1851 form,
you must
utilize a separate PDF 1851 form for both E series and H series bonds.
You
may not put two different series of bonds on the same form.
If there are two or more owners on the face of
the bond, the first name listed is considered the primary owner and must
sign the PDF 1851 on the first signature line. Additionally, if there are
multiple owners on different bonds, you cannot list more than one group of
owners on any one PDF 1851.
NOTE: The
type of co-ownership does not
necessitate the need for an additional PDF 1851. Thus, it does not make
any difference whether the co-owners own the bonds as tenants in common or
as joint tenants with rights of survivorship; as long as the owners are
the same, only one PDF 1851 is utilized. CAUTION:
Due to the complexities of ownership and funding government bonds, we
strongly recommend that you
consult with your estate planning attorney.
Income Tax Issues:
Funding U.S. Savings Bonds needs to be done with extra care to avoid acceleration of
income tax. The IRS has ruled that transferring a U.S. Savings Bond into a revocable
living trust is not an income taxable event so long as the bonds were
transferred to the trust of the maker that provided the proceeds to purchase the bonds. Treas.
Reg. §1.454-1(a)(iii); Rev. Rul. 79-409, 1979-2 C.B.208; Rev. Rul. 58-2, 1958-1 C.B. 236;
PLR 909053; PLR 7826024; PLR 7729003. If the bonds were not originally owned by the
trustmaker, an acceleration of the accrued income will occur and the client will be
obligated to pay additional income tax.
CAUTION:
Because of the taxable concerns regarding U.S.
Savings Bonds, exercise extreme caution when attempting to fund savings bonds to
a revocable living trust. If you are not certain whether the funding of a particular
U.S. Savings Bond will result in a taxable event, we are strongly recommend you
to seek counsel from your estate planning attorney.
Confirming
Accuracy of Funding: Note that it is not uncommon for the Federal Reserve Bank to
misplace some of the bonds that you have sent them for re-titling. Additionally, it is not
uncommon for the Federal Reserve Bank to return the bonds to you in two or more shipments.
Keep a copy of the PDF1851 form. It may be prudent to carefully compare the funded bonds you receive from the Federal
Reserve Bank against a retained copy of the PD 1851 form which will verify what you should have
received in return. If you notice that some bonds are missing, you can request a
"trace" be placed on the bonds.
Municipal
Bonds, School District Bonds, & Capital Improvement Bonds: Ownership of these
types of bonds is usually evidenced in the form of a Bond Certificate that is similar in
appearance to a stock certificate. Funding these types of bonds is accomplished through the use of
a Bond Power. The bond power will generally need to be Medallion
Signature Guaranteed in order to be re-titled. For assistance in preparing
a Bond Power and obtaining a Medallion Signature Guarantee, consult with an
estate planning attorney with experience in trust funding.
Transfer on Death
(TOD):
Another alternative to consider is the use of a transfer on death (TOD) designation.
A
transfer on death designation is a contractual provision added to the bond or the
bond certificate that provides for the transfer of the ownership on the death of the
owner. CAUTION: Note that a TOD designation will not provide any protection to
you in the
event of a disability. Consider using a limited special power of attorney to maintain
continuity during a disability. We recommend that you consult with your
estate planning attorney to obtain a power of attorney for maintaining
continuity during disability.
Find
an Attorney with trust funding services
|
