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Savings bonds are treated differently than other inheritances. Deferred interest from up to 30 years becomes taxable in the year the bonds are cashed. Many other assets avoid taxation on the appreciation during the decedent's lifetime because of the step up of capital gains valuation to the date of death. Not this asset. A majority of the value of this inheritance is fully taxable now. Treasury will enclose a Form 1099-Int with the gross proceeds when they cash the bonds per your request.

Perhaps you will want to limit your gift to your sons to the proceeds of the savings bonds after the deduction of funds to pay for federal and state income taxes.

Bill Patch
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