After my father died, I found some Series E and EE bonds not mentioned in his will. Some have matured and some will mature in the next few years. How can I distribute the bonds to his beneficiaries with the least amount of taxes on the interest? He died in November 2015.

Interest on E and EE bonds is exempt from state and local taxes, but subject to federal tax, which can be deferred, but only until the bonds mature, are cashed or change ownership.

The best tax strategy in situations like yours is often to report accumulated untaxed bond interest on the decedent’s final income tax return, because it may be taxed at a low rate if he had relatively modest income, and/or it may be offset by medical expenses. But April 15, 2016, was the deadline for filing your father’s final tax return. The election to declare this bond interest on a final return must be made when the return is filed. It can’t be reported on an amended return.

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His beneficiaries therefore must pay the taxes, at their own rates, on any untaxed interest that accrued both before and since your father’s death. They must cash the matured bonds. They can also cash the bonds that haven’t matured; alternatively, they can have those bonds reissued in their own names. As new owners, they could then defer taxes on the interest earned between a bond’s reissue and its maturity date. Before making a decision, the heirs should check the bonds’ value, current interest rates and redemption dates by entering their series denominations, serial numbers, and issue dates in the Savings Bond Calculator at treasurydirect.gov.

THE BOTTOM LINE Any taxes on savings bond interest that weren’t paid by the original owner must be paid by the beneficiaries.

WEBSITES WITH MORE INFORMATION

treasurydirect.gov/BC/SBCPrice

treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eedeath.htm