28 Nov Mom died years ago, but I just found a bond. What do I do?

Q. My mother passed in March of 2015 leaving an $800,000 estate to be split between her two daughters. I was the executrix, and I have since paid the taxes, settled the estate, and closed the estate checking account. I have just found a $5,000 series EE Patriot bond, bought in 2002, currently worth just over $5,100. I don’t suppose I can just take it to my local bank to cash it and give half to my sister? I see a form online for an estate to cash it, but what taxes will I owe and am I liable for penalties and interest from the time of her death despite the fact that it was an honest mistake?
— Heir

A. We’re sorry to hear about your mom.

It’s not unusual for executors to find an asset that wasn’t found at the time an estate is finalized. Unfortunately, you’re going to have to deal with more than simply cashing the bond and distributing the money.

First, know that while some Treasury bonds can be cashed at the local bank, many have to be cashed online at treasurydirect.gov, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

She noted that paper bonds are no longer issued.

The easiest way to have the bonds cashed is in the name of the estate by the executor or administrator of the estate, Romania said.

“If the estate account is closed, you will then need to reopen the estate account to have the funds directly deposited into that account, or have a check sent to you payable to the estate which you will then deposit into the account,” she said.

If you can provide documentation evidencing the estate is closed and the entire estate distributed to you and your sister, it may be possible to have the bonds reissued to you and your sister or the bonds cashed and paid to you and your sister, Romania said.

FS Form 5394 can be found online to make such a request, she said.

On taxes, Romania said federal income tax is not due on the interest earned on the bonds until the bonds are fully matured 30 years from issuance or when they are cashed if earlier, although interest accrued may be recognized and income tax thereon paid annually. Once you cash the bonds, income tax will be due on the interest and it must be payable by the estate or the two beneficiaries of the estate who receive the income, she said.

“Unlike now, where New Jersey does not have an estate tax, in 2015, the year of your mother’s death, New Jersey taxed estates in excess of $675,000,” she said. “As your mother’s estate was in excess, the bonds would have been subject to estate tax based on the value as of her date of death — not the value today.”

Unfortunately, the New Jersey estate tax remains a lien on the property of the decedent until paid, Romania said.

“An executor, as well as any beneficiary who receives property from the estate, is personally liable for payment of unpaid estate tax,” she said.

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This story was originally published on Nov. 28, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.