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 Secondary Owner, someone asked whether it’s easier and better to set up the I Bonds in TreasuryDirect with a beneficiary as opposed to a secondary owner.
Per Holding, Not Per Account
One difference between TreasuryDirect and other financial institutions is that the beneficiaries and the secondary 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 secondary owner or beneficiary, some I Bonds with Person A as the secondary owner (“you WITH A”), some I Bonds with Person B as the secondary 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 secondary owner or beneficiary for the entire account.
Only One Person On Each Bond
Each I Bond holding allows only one secondary owner or beneficiary but not both at the same time. This secondary 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.
If you’d like to name multiple beneficiaries on an existing I Bond, you’ll have to split it into parts and name a different beneficiary on each part. See How to Split an Existing I Bond for Multiple Beneficiaries.
No Effect On Purchase Limit
Naming someone as the secondary owner or beneficiary doesn’t affect their annual purchase limit. They can still buy $10,000 in their own account. Being named as the secondary owner or beneficiary on someone else’s I Bonds doesn’t affect your annual purchase limit. You can still buy $10,000 in your account.
After You Die
After you die, your secondary owners and/or beneficiaries need to contact TreasuryDirect by phone or email, effectively saying:
The owner of this account died. I’m the [secondary owner or beneficiary] of some bonds in the account. Please transfer those bonds to my account.
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 secondary owner, as I showed in How To Grant Transact Right on I Bonds to the Secondary Owner. You also have to do it bond by bond.
After your secondary owner or beneficiary inherits your I Bonds, they can name their own secondary owner or beneficiary on those inherited I Bonds.
Simultaneous Death
If both you and your secondary 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.
Secondary Owner = Beneficiary + (optional) POA
Whether you should set up your I Bonds with a beneficiary versus a secondary 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 secondary owner can be granted either View or Transact rights. In a sense, the secondary owner with Transact rights is like a beneficiary plus a power of attorney. The secondary owner with only View rights can’t do anything more than a beneficiary.
| Beneficiary | Secondary Owner | |
|---|---|---|
| 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 secondary owner at any time. If you started with a beneficiary and now you want a secondary owner, you can remove the beneficiary and add a secondary owner. If you started with a secondary owner and now you want to downgrade to a beneficiary, you can revoke the Transact rights or remove the secondary 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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Shelly Fisher says
If I buy $10,000 in I bonds this year can I still inherit I bonds this year? WHat if the I-bonds were in a family trust and the trust is being dissolved due to the death of the guarantor? Does it matter under what SSN the I bonds were issued? They were not issued in mine, but the trust will be shutting down.
Harry Sit says
If the deceased registered you as a second owner or a beneficiary on the bonds with TreasuryDirect, inheriting the bonds doesn’t affect your annual limit. If the bonds are in a trust, the trustee is making a transfer from the trust account to you. Receiving a transfer counts against your annual limit.
Teri Murphy says
Regarding the prior question on inheriting a $10,000 i bond from my spouse while already owning one: Does the limit mean I must immediately cash out the one I inherit, losing 3 months interest if it is less than five years old? I am asking because my husband has a terminal illness, so it seems he should not buy.
Harry Sit says
Inheriting as a second owner or a beneficiary doesn’t use up your annual limit. You’re not required to cash out the inherited bonds. You can keep them up to the original maturity, which is 30 years from the month of purchase.
Jack says
I purchased an I bond some months ago, and intended to add my daughter as POD, but it came thru as WITH. What are the implications of a ‘with’ designation. Can I, or should I, try to change the designation? I am a widower.
Harry Sit says
Please read the section under “Second Owner = Beneficiary + (optional) POA.” If you grant only View right or if you don’t grant any right, there’s no difference between second owner (“WITH”) and beneficiary (“POD”). You can change the registration from WITH to POD if you’d like.
Steve Kalish says
This is an excellent site. Thank you.
Mike says
When trying to add new registration, “joint” does not appear, only sole or beneficiary. was able to change to POD but would like to add co-owner. Got cut off several times on phone, have read and watched numerous videos. Wondering if you or anyone else has experienced this. Thank you
Harry Sit says
Use the “Primary Owner” option to create a registration with two owners. See “How to Add a Joint Owner or Change Beneficiary on I Bonds” linked in the last paragraph.
Jutta says
I added my hubby to my registration as ‘with’ co owner. Can I buy 20K worth of i bonds now as long as I use the ‘with’ registration?
Thank you!
Harry Sit says
No, because the limit counts against the primary owner. It doesn’t matter whether you have a “with” secondary owner or not.
Winston says
Thanks, Harry, for the clear info. Do you know if the Second Owner registration means the I-Bond funds would be counted as assets for the Second Owner in the event they were sued or needed to qualify for a gov’t program etc.
Harry Sit says
I’m not a lawyer. Courts and government programs define what counts and what doesn’t. I would think the bonds don’t count as being owned by a second owner because a second owner can’t do anything more than a beneficiary unless the primary owner grants the optional transact rights. The transact rights and even the second owner status can be revoked unilaterally by the primary owner without consent. True ownership can’t be stripped as easily as that.
Adam says
Above you said that a transfer from a trust counts against your annual purchase limit. Suppose I have a revocable living trust with $100,000 in ibonds that has the provision that my wife should receive them upon my death.
Can she inherit all of them in one year? Are you saying that, in the year of my death, she would not be allowed to purchase $10,000 in ibonds, but she could still inherit the whole $100,000?
That is, the only difference between being a direct beneficiary of ibonds and inheriting them via a trust, is that a trust transfer counts against the annual purchase limit, but you can still be transferred an arbitrary amount in that transfer year??
Harry Sit says
A trust doesn’t die. Receiving a transfer from the trust isn’t really inheriting. The transfer amount isn’t limited to $10,000 but it counts against the recipient’s annual purchase limit. If your wife receives more than that from the trust, she can’t buy any more in the same year. A transfer also triggers tax on the accrued interest to the “from” account whereas inheriting bonds in a personal account as a named secondary owner or beneficiary doesn’t. See I Bonds Tax Treatment During Your Lifetime and After You Die.
Jon says
My wife and I have a Revocable Family Trust with a pour-over will which assigns our estate to the trust after the second of us dies. If my wife is the beneficiary of my i-bonds (and vice-versa), will both of our i-bonds end up in our family trust, to be handled by the trustee according to the terms of the trust?
Harry Sit says
If you die first, your wife must contact TreasuryDirect to have the bonds transferred to her account. She can re-designate a beneficiary on each of her bonds but the beneficiary must be a person, not a trust. If she doesn’t put a beneficiary on the bonds or the beneficiary died before she dies, the executor of her estate must contact TreasuryDirect to distribute the bonds to the trust’s account according to her will. The trustee can sell or distribute the bonds to the trust’s beneficiaries as per the terms of the trust. Every change of ownership (from you to her, from her estate to the trust, from the trust to the beneficiaries) can take six months or more to process.