When you have retirement accounts with a private financial institution, you can designate beneficiaries for the account. Some financial institutions also allow Pay On Death (POD) or Transfer On Death (TOD) designations for non-retirement accounts. After reading the previous post How To Grant Transact Right on I Bonds to the Second Owner, someone asked whether it’s easier and better to set up the I Bonds in TreasuryDirect with a beneficiary as opposed to a second owner.
Per Holding, Not Per Account
One difference between TreasuryDirect and other financial institutions is that the beneficiaries and the second owners in TreasuryDirect are set at the holdings level, not at the account level. Theoretically, within the same account, you can hold some I Bonds without any second owner or beneficiary, some I Bonds with Person A as the second owner (“you WITH A”), some I Bonds with Person B as the second owner (“you WITH B”), some other I Bonds with Person C as the beneficiary (“you POD C”), and yet another set of I Bonds with Person D as the beneficiary (“you POD D”), and so on. Even though you may not need this much granularity, you can’t simply set a second owner or beneficiary for the entire account.
Only One Person On Each Bond
Each I Bond holding allows only one second owner or beneficiary but not both at the same time. This second owner or beneficiary must be a person, not a trust or a charity. If you’d like to leave your I Bonds to multiple people after you die, you must make separate purchases and name a different person for each I Bond.
No Effect On Purchase Limit
Naming someone as the second owner or beneficiary doesn’t affect their annual purchase limit. They can still buy $10,000 in their own account.
After You Die
After you die, your second owners and/or beneficiaries need to contact TreasuryDirect by phone or email, effectively saying:
The owner of this account died. I’m the [second owner or beneficiary] of some bonds in the account. Please give those bonds to me.
If your beneficiary has their own TreasuryDirect account, you can let the beneficiary see which I Bonds they’re a beneficiary of by granting them View rights on those I Bonds. The process to grant View rights to the beneficiary is the same as the process to grant Transact rights to the second owner, as I showed in the previous post. You also have to do it bond by bond.
After your second owner or beneficiary inherits your I Bonds, they can name a second owner or beneficiary again on those inherited I Bonds.
If both you and your second owner or beneficiary die at the same time, the I Bonds will go to your estate. This may require probate. If you’d like to avoid probate, name someone who isn’t likely to die at the same time as you, such as an adult child as opposed to your spouse. They’ll get an early inheritance when you die, and your surviving spouse will live on other assets.
Second Owner = Beneficiary + (optional) POA
Whether you should set up your I Bonds with a beneficiary versus a second owner depends on whether you want to let someone transact on those bonds on your behalf when you’re still living. A beneficiary can only be granted View rights. A second owner can be granted either View or Transact rights. In a sense, the second owner with Transact rights is like a beneficiary plus a power of attorney. The second owner with only View rights can’t do anything more than a beneficiary.
|Set on each bond||Yes||Yes|
|Receive bonds after your death||Yes||Yes|
|Can be granted View rights||Yes||Yes|
|Can be granted Transact rights||No||Yes|
Primary Owner Rules Supreme
As the primary owner of the I Bonds, you can change the arrangement at will. You can add or remove a beneficiary or a second owner at any time. If you started with a beneficiary and now you want a second owner, you can remove the beneficiary and add a second owner. If you started with a second owner and now you want to downgrade to a beneficiary, you can revoke the Transact rights or remove the second owner altogether and add a beneficiary. It’s all up to the primary owner. See How to Add a Joint Owner or Change Beneficiary on I Bonds.
Reference: Registering a Savings Bond: Series I
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