Passing on savings bonds: a tax-free transfer
Q. My husband and I purchased two series EE savings bonds in 1986. He passed on the next year. As co-owner of the bonds, I am thinking of reissuing them in the name of my children. Can I make this gift without incurring tax liability? Finally, the bonds were supposed to have a 7.2 percent interest rate. At this time each bond is worth $5,654. Does that amount represent that interest rate?
-F.P. Reston, Va.
A. There's good news and bad news here, says Daniel J. Pederson, author of "Savings Bonds" (800-927-1901).
Good stuff first: You can ask the Treasury to remove your late husband's name and substitute one of your children as co-owner or beneficiary on each bond. The change is not a taxable event.
If you list a child as co-owner, the child can cash the bond at any time, although he or she would have to pay the tax on the earned interest.
If neither bond is redeemed during your lifetime, the interest earnings become part of your estate, even though the ownership of the bond will remain with your child.
Call the Treasury at (304) 480-6112 and ask for Form PD-4000 to make the name changes.
Now, the bad news. Your 7.2 percent interest rate lasted 10 years, after which it dropped to 4 percent. That's your current rate.
QA mutual fund table in the Monitor on Nov. 30, 1998, listed the one-year return of the Transamerica Premier Small Company Fund as 47.7 percent. Yet when I wrote for a fund prospectus, the return was listed as 14.02 percent. I noted that in Transamerica's table, the return is listed as of Sept. 30, 1998. But there must be another reason for the gap, or is there?
- A.C., Cumberland, R.I.
A. Mutual fund gains can occur in a very short time, often just in a few weeks.
The returns noted above are correct.
The Transamerica fund you mention was up a modest 14.02 percent through Sept. 30, 1998.
But then it had an end-of-the-year spurt. The fund was up 48 percent through November. More growth was to come, however, as it closed out the year up 80.27 percent.
For 1999, through Feb. 16, the fund is down 4.5 percent. But since its inception in July, 1997, the fund is up a whopping 117.2 percent.
Questions about finances? Write: Guy Halverson The Christian Science Monitor 500 Fifth Ave., Suite 1845 New York, NY 10110 E-mail: email@example.com