I have a bunch of Series E and EE bonds, and we recently converted into a trust, my wife and I, and I'm wondering how we go about transferring these bonds into the trust fund.
F. A., Bluffton, S.C.
To change the registration on your bonds in this instance, you simply fill out a form and send the form -- along with your bonds -- to the regional Federal Reserve bank that handles savings bond processing for your area.
"It's not that difficult to fill out," said Daniel J. Pederson, president of the Savings Bond Informer (1-800-927-1901), a company in Detroit that calculates bond values and sells other services to bondholders.
Ask your local bank, savings and loan or credit union for a copy of Form PD F 1851. (You may also get a copy by writing: Bureau of the Public Debt, 200 Third St., Parkersburg, W.Va. 26106.)
You can have the bonds registered solely in the name of the trust, or you can have them registered with the names of both the trustee and trust, such as, "John Doe, trustee, under declaration of trust" (listing the date the trust was created), Pederson said. You can include the name of a co-trustee, too, he said.
A key question is whether a change in registration in a situation such as yours will trigger federal income-tax consequences. In most such cases, it won't, because of the nature of the trusts that are usually involved in these situations, Pederson said.
They're usually "revocable" trusts, or "living" trusts. In general, you -- as the "grantor" -- transfer property to such a trust, dictate trust terms, and maintain certain rights -- including the right to cancel, or "revoke," the trust. In such cases, the Internal Revenue Service generally views you as the owner of the assets in the trust, so any income the trust generates is generally taxed to you. As a result, when you transfer savings bonds to such a trust, you're really just transferring them to yourself in a sense. There's really no overall change in ownership, so the transfer typically won't trigger tax consequences.
But keep in mind that this is nothing more than a general summary of how such trusts work. To make sure your trust is the kind that won't result in tax problems when you change the registration of your bonds, contact your lawyer.
And to make doubly sure no tax consequences will be triggered, send a cover letter to the Federal Reserve along with your completed form, Pederson said. In the letter, ask the Federal Reserve to contact you before processing the form if the change in registration that you propose will result in a taxable transaction, Pederson said. If it does, you can cancel the registration change if you like.