Ask the Expert: Charitable bequests

I have a substantial number of HH bonds that have earned significant interest over the years. When I die, I plan to donate them to a nonprofit charitable institution. I asked two legal sources whether the charitable institution would have to pay tax on the accrued interest. One said yes, the other said no. Can you give me a definitive answer? Are there any conditions I must meet to avoid taxes on the interest?

Only two. The first, unfortunately, is to die. The second is to leave the right instructions for your executor.

It sounds as if you originally owned EE bonds, which you converted to HH bonds to postpone income taxes due on the accrued interest, says Neil Geschwind, a certified public accountant based in Melville. If so, after your death your executor can decide whether your estate will pay income taxes on that interest.

If the executor elects not to include the accrued bond interest on the estate's income tax return, all the interest the bonds earned before and after your death would be considered income to the charity that receives your bequest. Assuming this is a public charity, it won't owe taxes on the bond interest, either, Geschwind says. (Private charities do pay taxes on interest.) The result: No one will pay income taxes on the interest. To ensure this happy outcome, it's a good idea to record the bequest in your will as a gift of both the bonds and their accrued interest.

If you carry out your intention, the bonds also will avoid estate tax (not to be confused with income tax). Their value is included in your taxable estate but will be fully deductible because you've donated them to a charity.

The bottom line A charitable bequest can escape taxation. Websites with more information 1.usa.gov/zRvXeI and

bit.ly/ApmDwm