There are several estate planning issues you should keep in mind if you have savings bonds or plan to invest in them.
There are currently two types of savings bonds: Series EE U.S. Savings Bonds are currently sold at face value and worth their full value upon redemption with interest. Series I U.S. Savings Bonds are inflation-indexed, i.e., they offer a fixed rate of interest that is adjusted for inflation and are often used as a long-term investment.
Will Savings Bonds Avoid Probate?
Probate is the court process for ensuring that a deceased person’s assets are transferred to the correct beneficiaries. People often seek to avoid probate, as it can be a time consuming and expensive. Whether a savings bond will have to go through the probate process depends on how the savings bond is titled; in other words – how it is owned.
Single owner. It is very common for an individual to purchase a savings bond titled in his or her own name. However, if you choose to do this, your estate will go through the probate process, even if you have a will specifying who you would like to inherit it. If you do not have a will, the savings bond will be passed on to your heirs as determined by a court under Texas law.
Name a co-owner. Two or more people can hold title to a savings bond as co-owners. Each of the co-owners is allowed to cash the bond, even without the knowledge or permission of the other owners. Savings bonds titled in this way pass directly to the surviving co-owner(s) without probate. However, when the last owner dies, the savings bonds are part of the last surviving person’s estate, which must be probated in the absence of additional estate planning designed to avoid it.
Name a beneficiary. Another option is to name a beneficiary with the U.S. Treasury Department using the TreasuryDirect website. If you do this, the savings bond will not need to go through probate, because the beneficiary you have named will automatically become the owner upon your death. The beneficiary must also set up a TreasuryDirect account, but once it is established, will only need to deal with a straightforward process to transfer ownership of the bond when you pass away. This beneficiary designation will take precedence over a contrary provision in your will.
Create a trust. If you want to continue to benefit from the savings bond individually, without naming a beneficiary with the Treasury Department, but also want to avoid probate, you can create a trust and transfer title of the savings bond to the trust. Beneficiaries you name in the trust can receive the benefit of the savings bond, and you can name someone you trust as the trustee to manage the savings bonds. When savings bonds are held by a trust, you can protect beneficiaries who tend to be financially irresponsible from themselves by preventing them from cashing and spending the bonds until the terms of the trust allow them to be distributed to the beneficiaries. In addition, certain types of trusts can protect the savings bonds from being reached by your beneficiaries’ creditors.
If you own savings bonds or are considering investing in them as part of your financial plan, an experienced estate planning attorney can help you consider the pros and cons, as well as the best ways to title them in order to achieve your estate planning goals.
The one mistake you want to avoid is not coordinating your savings bonds with your overall estate plan.
You may also be interested in https://www.galliganmanning.com/common-mistakes-made-on-beneficiary-designations/.