Getting Started: Savings Bonds
As the stock market has fluctuated, bonds have grown popular because of their security and steady return. Redeeming bonds can complicate your tax situation, however, so giving them as a charitable gift in your will may be a smart way to support a cause you believe in and relieve some of the tax burden on your estate.
If you own bonds, you probably do not declare the interest income as the value of the bond increases. The difference between a bond’s purchase price and its value when redeemed is usually taxed when the bond is sold.
Unfortunately, bonds cannot be donated to a charitable organization during your lifetime. Instead you can redeem the bonds and a make a gift of cash.
The redemption still triggers tax liability to you on the interest income. If you die owning savings bonds, the untaxed interest may be subject to income taxes that could absorb as much as 35 percent of the untaxed interest. Plus, if federal estate taxes apply to your estate, another large portion of the bonds can be consumed by federal estate taxes. (Note that federal estate taxes are repealed for any deaths that occur in the calendar year 2010 and yet are scheduled to fully reappear in 2011. Congress may make changes to laws regarding federal estate taxes. Check back later for future updates.)
Leaving the bonds to the Alliance for the Arts through your will, however, will allow your estate to donate the full value of the bonds – qualifying your estate for relief from estate and income taxes. Another option is leaving the bonds, upon your death, to a charitable remainder trust to first benefit your loved ones with payments for their lifetimes and then the balance to the Alliance.
Finding the right asset for your charitable gift can be challenging, so feel free to contact us at (805) 449-2590 if you have questions about donating savings bonds.
Click on the Links Below for Additional Information:
The information in this website is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to income tax apply to federal taxes only. Federal estate tax, state income/estate taxes or state law may impact your results.