The question of whether to list a child on Treasury bonds can be answered in various ways. Each method has its own ramifications. Anyone considering listing a child on Treasury bonds will need to first consider the different ways the child could be listed, and then how that listing would financially affect the parent and the child, especially in terms of tax liability.
Right of Survivorship
A child can be listed on his parent's Treasury bonds as having only right of survivorship, making the child the beneficiary of the bonds. This means that the child does not own the bonds while the parent is alive, and the child is not responsible for any taxes that might be due as a result of interest on the bonds. The bonds belong to the parent, and they become the child's only if the parent dies. This is the least complicated method of listing a child's name on an adult's Treasury bonds.
A child can be listed as the secondary owner of her parents' Treasury bonds, which is a different status than right of survivorship. Normally, the first person listed on the bond is the primary owner and is the person who has the right to make transactions involving that bond. However, it is possible for the primary owner to transfer this right to the secondary owner. So a child who is a secondary owner and is no longer a minor could act as though she were the primary owner. This setup can significantly affect tax liability, and should be discussed with a tax accountant in advance of any action.
Minors are not allowed to purchase Treasury bonds for themselves. Such an account must be opened by the child's parent or guardian, who must be the person who provides most of the financial support for the minor. All activity on the child's account must occur through the adult's account. Any earnings are reported as part of the child's assets, not the adult's. The responsible adult can buy or sell bonds for the child but must always access the minor's account through the adult's registered account. The adult must also certify that any activity in the child's account is for the benefit of the child.
When listing a child on Treasury bonds, the parent must first consider the primary reason for doing so, such as the ability for the bonds to pass easily to the child if the parent dies. The most appropriate method should be used, which will usually result in listing the child as the beneficiary or secondary owner. It is also very important to consider the effects that selling bonds can have on income and taxes. A tax accountant or tax attorney might be needed to determine the best course of action.
- U.S. Government Printing Office: Money and Finance: Treasury: Section 363.27
- Debra J. Beck; Customer Service Specialist, Treasury Direct; Washington, D.C.
- Treasury Direct Frequently Asked Questions: Purchasing Marketable Securities: How can I register a marketable security?
- Treasury Direct FAQs: Are there times when I will not be responsible for the tax liability for a transaction performed on one of my securities?
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