29 Jan Who pays tax on my deceased parent’s bonds?

Q. My parent died. There is a pile of EE bonds (like 100 of them, in fairly small denominations). The executor has no idea what to do with them. I say, cash them out by depositing them into the estate account. She’s all, then who pays the tax? An estate account isn’t a person. So, do we at the end of the year file an income tax return for “the estate?” How does that work?
— Beneficiary

A. We’re sorry for your loss.

There is a lot the executor needs to understand here.

When an individual dies, most of their assets receive a step-up in basis, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

That means the basis to the beneficiary — used, for example, to calculate capital gain on sale — is the date of death fair market value and not the decedent’s basis, she said.

But this is not the case with certain assets such as retirement assets and savings bonds.

In the case of savings bonds that are distributed in kind to beneficiaries, the executor has a choice as to reporting of the income, Romania said.

One way is to report the income that was accrued — but not actually received — before the decedent’s death on the decedent’s final income tax return (applicable Form 1040), she said. Then the remaining interest would be reported by the beneficiary when the beneficiary cashes in the bond at maturity, Romania said.

“If instead the executor chooses not to report the accrued interest on the decedent’s final income tax return, the beneficiary would include all of it when the bond is cashed in at maturity,” she said.

If, as you indicate, the bond is to be cashed out at or before reaching maturity by the executor, while it is still held by the estate, the interest will be reported on the estate’s income tax return, Form 1041, U.S. Income Tax Return for Estates and Trusts, Romania said.

This form is filed under the estate’s tax identification number.

“The estate will pay tax on any income in excess of deductions which income is not distributed to the beneficiaries,” she said. “If income is distributed to beneficiaries, the beneficiary will report the income on their personal income tax return.”

Due to the income tax implications, Romania recommends you consult with the estate’s and beneficiaries’ accountants.

You can also check IRS Publication 599, which explains income in respect to decedents including interest on savings bonds.

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This story was originally published in January 2026. 

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.