Avoid creating a complex, frustrating estate process.

By David Enna, Tipswatch.com

TreasuryDirect, the only source for buying and holding Series I Savings Bonds, is having quite a moment: Its customers, after years of contending with mediocre service, are enraged by the Treasury’s decision to move very quickly to a new login verification system through a private company, ID.me.

Read about that here: “TreasuryDirect is launching a controversial login system.”

But that isn’t the point of this article. Here is my message today: It makes absolutely no sense to hold I Bonds until death. The reason? Your surviving beneficiaries or estate will face months, maybe even years, of delays in distributing the account assets. Plus they may have to deal with multiple forms (long processing times) and required medallion signature guarantees (nearly impossible to get at most banks).

This is not a new issue, but it gets more pressing because we all are aging. Admit it!

I am hearing from a lot of readers who are planning to redeem or transfer all holdings at TreasuryDirect because of the ID.me transition. I am not recommending that, but I am recommending that you have a plan to exit TreasuryDirect before you die. (If that is at all possible.)

I am not an expert on this topic and have never had to deal with the death of an account holder. But I am sure many of you have, and I hope you will contribute advice in the comments section below.

A tangled bureaucracy

I have a friend who is executor for a relative’s estate. The relative, who recently died in her 90s, had a fairly large amount of converted I Bonds from 2000 and 2001, which have more than quadrupled in value.

The executor had access to the TreasuryDirect account, but had questions. She called TreasuryDirect and asked, “Can you tell me if these I Bonds have a co-owners or beneficiaries?” The answer: “No, I cannot answer that.” And then TreasuryDirect immediately locked the account, as is its standard practice after a death. This is noted here: “Death of a savings bond owner.”

TreasuryDirect does not allow joint accounts, but it does allow “co-ownership” of savings bonds. That should make things easier for a surviving spouse. TreasuryDirect says:

If a surviving co-owner or beneficiary is named on the savings bond, the bond goes directly to that person. It does not become part of the estate of the person who died.

But the actual advice is “contact us” and not much else.

See more here: “Inheriting savings bonds as a named co-owner or beneficiary“

Question: I would love to hear feedback from surviving co-owners on how this process worked. Were there delays? Multiple forms to fill out? Or could you simply continue to maintain or transfer that account to your own, with little hassle? If so, there is no pressing need to redeem all I Bonds (even if you are at death’s door) if you have a co-owner who can take over the account with little complexity.

Sole owner: What happens next?

Let’s focus on the death of the sole owner of the savings bonds (which is the case when a co-owner died earlier). This most likely applies to my executor friend’s situation. She needs to know if the savings bonds had any beneficiaries, because that determines the next step.

Assuming there was no co-owner or beneficiary, TreasuryDirect will look to a state court to recognize the executor who will eventually be able to distribute or redeem the savings bonds. This triggers automatically if the holdings exceeded $100,000, as was the case for my friend. (Also, my friend believes there were no named beneficiaries on these converted I Bonds, but isn’t sure since Treasury Direct will not tell her if there are beneficiaries without opening a “case” which could take up to 10 months to get the answer.)

The executor will need a death certificate, plus a court-issued “Letter of Testamentary” that certifies this person has been named executor of the estate. Those forms must be sent to TreasuryDirect, which will then consider allowing the executor to control the assets. Other forms may be needed, including these:

• Form 1455, Request by Fiduciary for Distribution.
• Form 5512, Redemption and/or Bank Change Request
• Form 5511, Transfer Request, for distribution to beneficiaries.

The forms may say “notary certification is NOT acceptable,” but it appears that TreasuryDirect may be willing to waive that requirement, since medallion signature guarantees are very difficult to achieve. More on this.

The process of reviewing these forms can take up to 10 months.

Every single stage of this process can take months. If the executor decides to redeem the I Bonds inside the estate, that decision could take months. And then the eventual distribution of assets to a matching estate account outside TreasuryDirect could take additional months.

Delays are also likely if the savings bonds are going to a beneficiary, as detailed in this article at MyMoneyBlog.com, “TreasuryDirect Customer Service Delays and Estate Planning Concerns“:

My dad’s I bonds were transferred to me around the 4-5 month mark.

After that experience, I decided to liquidate all of my TD accounts, and will encourage my husband to do the same. I personally don’t want a repeat of this experience, or make my heirs go through such a lengthy process in resolving my estate.

What I learned from this experience is to not discount how much stress and mental bandwidth it takes to deal with TD when you’re also grieving the loss of a family member, and trying to settle the estate so you can move on financially.

A similar story was told in an October 2024 Bogleheads post:

An ongoing horror story. Learn something from this. Please don’t do this to your family. My sister passed away in April 2024. While going through her papers, we found a business card with an account number for Treasury Direct. (TD) Since there is no paper trail, it was a piece of luck that we found the card and then found the account.

We completed paperwork in July. We called TD and was told that everything we needed to file and created has been completed and that a TD auditor would review our claim. We were told the timeline would be about a year. …

So here we are in October 2024; six months later. We call TD monthly just to log a call. We still don’t know what’s in the account. We were hoping to close the estate by the end of the year. The TD account is the last item to be closed and TD is holding us up. Thanks to TD, we are looking at interest and penalties because we don’t have the information to file a final tax return.

In my friend’s case, she won’t have access to the relative’s account until TreasuryDirect receives and reviews the death certificate and Letter of Testamentary. And most likely she will never have actual “access” to the account. Once she is recognized as the executor, she could direct TreasuryDirect to redeem the I Bonds and deliver the proceeds to an estate account at a financial institution. But that could take months.

Eventually, the estate will owe taxes on that redemption. How much? She might know in early 2028 when 2027 taxes are filed, which means complete distribution of assets could take a very long time.

Plus, the addition of the ID.me verification layer could cause future problems in accessing account information, such as finding 1099s for 2026, to be issued in late January 2027.

Needless to say, there are only two investments a sole-owner elderly person should own at TreasuryDirect: 1) Savings bonds, because TreasuryDirect is the sole source, and 2) T-bills up to about 26 weeks, because those will mature and pay out. If you are elderly, don’t purchase Treasury Inflation-Protected Securities at TreasuryDirect. Do it at a brokerage to avoid potential estate hassles.

The I Bond strategy

My advice for TIPS is to hold to maturity, if at all possible. TIPS can be held in a tax-deferred account, with a beneficiary, or in a taxable account, where taxes are kept current on the inflation accruals. There is no big deal — tax-wise — at maturity.

This isn’t the case with I Bonds. No I Bond has ever matured; that process will begin in 2028 and beyond. There is no overriding reason to hold I Bonds to maturity. I Bonds are a cash-equivalent investment and should be redeemed when you need the money. They can never go down in value. When the time comes, cash in and enjoy life.

The ideal holding period for an I Bond is 5+ years until … you need the money.

What about taxes?

My recommendation is going to be difficult to hear: If you are a sole owner of savings bonds at TreasuryDirect and know your life is nearing an end, immediately redeem every holding and transfer the money out of TreasuryDirect. You will then be responsible for the taxes owed on the interest, to be paid when your executor files that return in the next year. Your estate and heirs will get less money, but will be free of that tax burden and the lingering hassle of TreasuryDirect after death.

I am NOT a tax expert and I am sure many readers know more about this than I do. Here is what the IRS says for savings bonds with accrued interest collected over years:

If the bonds transferred because of death were owned by a cash method taxpayer who chose not to report the interest each year and had purchased the bonds entirely with personal funds, interest earned before death must be reported in one of the following ways.

1. The person (executor, administrator, etc.) who is required to file the decedent’s final income tax return can elect to include all of the interest earned on the bonds before the decedent’s death on the return. The transferee (estate or beneficiary) then includes only the interest earned after the date of death on its return.
2. If the election in (1) above wasn’t made, the interest earned to the date of death is income in respect of the decedent and isn’t included on the decedent’s final return. In this case, all of the interest earned before and after the decedent’s death is income to the transferee (estate or beneficiary). A transferee who uses the cash method of accounting and who has chosen not to report the interest annually may defer reporting any of it as income until the bonds are either cashed or reach the date of maturity, whichever is earlier. In the year the interest is reported, the transferee may claim a deduction for any federal estate tax paid that arose because of the part of interest (if any) included in the decedent’s estate.

The IRS includes a few examples on that page, but I think the core is this:

1. The executor can include interest earned up to the date of death on the sole owner’s tax return, and in that case the beneficiary (or the estate) will pay taxes on interest earned after the date of death.
2. Or if not option 1, then the person (or the estate) receiving the savings bonds will accept the full tax burden at redemption, which could be sizable.
3. A variation on option 1 is for the executor to have TreasuryDirect redeem all the savings bonds, deliver the cash to a related estate account, reserve money for future taxes on tax returns for the sole owner and estate, and … eventually … deliver the remaining cash to beneficiaries. That will take time, but the estate will carry the tax load.

I suspect CPAs could argue about this for hours.

The better option: Redeem all I Bonds before the sole owner’s death.

I am sure many of you have different opinions. My expertise in this area is extremely limited. I believe I have only scratched the surface of these difficult issues. Please share your thoughts.

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.