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Bond tax liability can't be shifted

Q: I have a large number of $100 face value Series E U.S. savings bonds, dated from 1966 to 1979. The bonds are registered in my name, POD (payable on death) to my late wife. I would like to give the bonds to my daughter, who has two young children, so that she can cash the bonds as needed.

Should I have the bonds reissued in my daughter's name and the children's names, POD to me, or in the children's names, POD to my daughter?

My intent is to reduce or eliminate any tax liability.

A: You can't do that. Having the bonds reissued in either your daughter's name or your grandchildren's names would be a "taxable event," and you would be stuck for federal income tax on the accrued interest.

Many folks who have longtime holdings of U.S. savings bonds would dearly love to transfer the bonds' ownership and tax liability to younger family members. But there is no legitimate way to shift that tax liability from one living person to another living person.

You can have the bonds reissued in co-ownership form _ in your name "or" your daughter's name, or in your name "or" a grandchild's name _ without incurring an immediate tax liability. Or you can have the bonds reissued in beneficiary form _ in your name, POD to your daughter or a grandchild. By doing that, the name of the original owner _ you _ would not be removed from the bonds.

However, if the bonds are redeemed before you die, you'll be responsible for the tax. Keep in mind that your Social Security number is on each bond as a taxpayer identification number.

The surviving co-owner or beneficiary would be responsible for tax on the interest from bonds cashed after you leave this vale of tears.

Q: Early this year, I bought a $50 Series EE bond for my wife as a gift. It is made out in her name. She passed away June 2. How can I have the bond changed to my name or to cash it?

A: You can do either through the district Federal Reserve Bank serving your part of the country. You'll have to provide a copy of your wife's death certificate and proof you are her heir, then fill out the necessary form. Your local bank should be able to provide those forms, help you complete them and send everything along to the Fed bank. If not, ask your bank for the name and address of the Fed bank. Then phone the Fed bank and ask for the savings bond division, which can provide the necessary forms and instructions.

Q: My wife and I have about 125 Series EE bonds, mostly $100 face value bonds, purchased at $50 each through our payroll savings plan. Can we consolidate some of these bonds into $1,000 face value bonds, without incurring an immediate tax liability? This might be a crazy question, but the quantity of bonds is becoming a nuisance because of their bulk.

A: You can do it through your district Federal Reserve Bank. When small E or EE bonds are reissued as larger denomination bonds, the new bonds you receive will bear the issue dates of the bonds you surrender. As a result, the new bonds continue to accumulate interest from the old bonds' issue date.

No income tax on that interest will be due until you redeem the new bonds.

William Doyle welcomes written questions, but will be able to give answers only through the column. Address questions to William Doyle, King Features Syndicate, 235 E 45th St., New York, NY 10017.