Buy I bonds in in-laws' names?

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DelawareAB
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Buy I bonds in in-laws' names?

Post by DelawareAB »

Is it a good idea (or legal) to buy I bonds in my in-laws' names?

I would provide the money and (with their consent) list them as primary owners and me as the secondary owner. I've already bought the max for my wife and children and wouldn't mind buying more. I would create and administer the account on TreasuryDirect.

The big risks I see are some kind of falling out with them or divorce. At least at the moment those risks seem manageably low. Anything else?
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Re: Buy I bonds in in-laws' names?

Post by LadyGeek »

Welcome! You can buy I Bonds as gifts. Here's how: Individual - Savings Bonds As Gifts, from TreasuryDirect.
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Re: Buy I bonds in in-laws' names?

Post by BrokerageZelda »

DelawareAB wrote: Tue Jun 22, 2021 10:42 pm Is it a good idea (or legal) to buy I bonds in my in-laws' names?

I would provide the money and (with their consent) list them as primary owners and me as the secondary owner. I've already bought the max for my wife and children and wouldn't mind buying more. I would create and administer the account on TreasuryDirect.

The big risks I see are some kind of falling out with them or divorce. At least at the moment those risks seem manageably low. Anything else?
You can buy 'gift bonds' with your in-law's name first, but you cannot have your own name as POD or WITH on a gift bond that you give (yes, I've had the same idea). However, you might be able to buy a gift bond registered to In-law WITH Wife, or have the in-law add you as a WITH after they receive the gift bond.

Each in-law will need a separate personal TD account to receive the gift bond, as you noted. And receiving gift bonds counts as purchasing bonds in terms of the purchase limit, so once an individual receives $10k in gift I Bonds in a single year, they're not allowed to buy or receive any more I Bonds for the rest of the year without getting nailed for over-purchasing by TD (yes, I've had the same idea).

You can be WITH or POD on as many bonds as you like, however if a WITH bond's second owner redeems a bond, the primary owner of the bond gets hit with the tax bill/1099, so you can't just use a bunch of family and friends as 'mules' with no consequence (yes, I've had the same idea). Staying in compliance with IRS gift reporting rules is your responsibility (it's a wash when you do this between spouses, but not necessarily otherwise). Also, the owner of the TD account can remove a WITH second owner at any time.
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DelawareAB
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Re: Buy I bonds in in-laws' names?

Post by DelawareAB »

Thanks for the thoughtful replies.

I had not been planning to use TreasuryDirect's gift features to buy the bonds for my in-laws. I had just been planning to create the accounts in my in-laws' names and then naming myself as the secondary owner. But the account would be linked to my wife's and my joint bank account.

It would be good to know if this was illegal or fraudulent somehow! I don't see how it would be. Legally, I might be giving the $10k to each of my in-laws (even if I didn't use the features on TreasuryDirect meant for gifts), but that doesn't necessarily seem problematic. Maybe it is against some rule for me to sign up for an account in someone else's name. But I suspect that is fairly common (for example, people creating accounts in their spouse's names). Also, I would have their consent to do this.

It does seem like a downside that if I redeemed the bonds, my in-laws would receive a 1099. However, the TreasuryDirect website seems to say that, if I paid for a bond of which I am a co-owner, then I would be liable for any taxes.
https://www.treasurydirect.gov/indiv/re ... nsider.htm
So it is not totally clear to me that they would automatically be on the hook for any taxes.

Relatedly, would it make sense to buy the I bonds in my in-laws names, have my in-laws hold the bonds for the minimum period, and then give the bonds to me (or my wife or children)? Then they would no longer be listed as owners. Would that avoid some of the other downsides (tax issues, potential lack of control later)?

I'm sure other people have thought about these issues. Is there a way (or a best way) to use family members to increase the purchase limit?

Thanks again!
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Re: Buy I bonds in in-laws' names?

Post by Chuck »

I Bond purchase limits are annoying, but this is a line I wouldn't cross.
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Re: Buy I bonds in in-laws' names?

Post by BrokerageZelda »

DelawareAB wrote: Wed Jun 23, 2021 1:55 pm Thanks for the thoughtful replies.

I had not been planning to use TreasuryDirect's gift features to buy the bonds for my in-laws. I had just been planning to create the accounts in my in-laws' names and then naming myself as the secondary owner. But the account would be linked to my wife's and my joint bank account.

It would be good to know if this was illegal or fraudulent somehow! I don't see how it would be. Legally, I might be giving the $10k to each of my in-laws (even if I didn't use the features on TreasuryDirect meant for gifts), but that doesn't necessarily seem problematic. Maybe it is against some rule for me to sign up for an account in someone else's name. But I suspect that is fairly common (for example, people creating accounts in their spouse's names). Also, I would have their consent to do this.

It does seem like a downside that if I redeemed the bonds, my in-laws would receive a 1099. However, the TreasuryDirect website seems to say that, if I paid for a bond of which I am a co-owner, then I would be liable for any taxes.
https://www.treasurydirect.gov/indiv/re ... nsider.htm
So it is not totally clear to me that they would automatically be on the hook for any taxes.

Relatedly, would it make sense to buy the I bonds in my in-laws names, have my in-laws hold the bonds for the minimum period, and then give the bonds to me (or my wife or children)? Then they would no longer be listed as owners. Would that avoid some of the other downsides (tax issues, potential lack of control later)?

I'm sure other people have thought about these issues. Is there a way (or a best way) to use family members to increase the purchase limit?

Thanks again!
The tricky part about electronic I Bonds is that the concept of a "Co-Owner" only applies to OR bonds, which only occurs on paper bonds (or electronic bonds that were originally issued on paper). For these bonds, both owners have full ownership rights, and if one owner wants to transfer the bond, the other owner must consent. On the other hand, "Secondary Owners" on WITH bonds are really just beneficiaries with the power to redirect a Primary Owner's redemption into their own bank account. That's why the taxes work the way they do, and why the Primary Owner can remove a Secondary Owner without the Secondary Owner's consent.

TD-specific tax considerations are listed here:
https://www.treasurydirect.gov/indiv/he ... rnMore.htm

It is possible to manually file 'nominee 1099-INT' forms (mentioned in the above link) with the IRS when you want to split or reassign interest income among Co-Owners of an OR bond. I do not know if this arrangement is possible between Primary and Secondary Owners on electronic WITH bonds; I could see arguments both for and against. I would call TD customer service to ask if that would be possible.

Changing ownership of a bond after issue would have possibly far-reaching tax reporting consequences for everyone involved (if everyone needs to switch to yearly accrual reporting) and may still not get you around the $10k purchase limit (because of the principle established with gift bonds counting against the limit). I would not personally recommend it.

Pulling back a little, using in-laws as 'bond mules' is one of the riskiest I Bond hacks because you don't have real legal rights to that money at any time while the in-laws are still alive. If you're dead set on hacking the limits beyond sharing with your spouse, revocable trusts and sole proprietorships are eligible 'tax entities' that can be designed to fall under your direct personal control and tax ID number.

Also: I would not link an unrelated person's TD account to your own bank account. That sounds pretty clearly unacceptable and undesirable for various reasons.
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Re: Buy I bonds in in-laws' names?

Post by wetgear »

DelawareAB wrote: Tue Jun 22, 2021 10:42 pm I would create and administer the account on TreasuryDirect.
As others have noted this might not be a good idea but I'm pretty sure the quote above is what makes this illegal. If you really want to move forward with this idea (it still is questionable) then at least get the in-laws to participate by opening and administering their own accounts, linked to their own bank accounts as TD intends.
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Re: Buy I bonds in in-laws' names?

Post by SnowBog »

Why not just create trust account(s), such as living revocable trusts - one each for you and your spouse - and use those?

Combined with $5k from tax refunds, this let's a married couple buy up to $45k of I Bonds and $40k of EE Bonds per year. (We maxed out I Bonds this way [pending tax refund], only $20k of EE Bonds for our needs though.)

Perfectly legal, and no ambiguity or odd arrangements required. (One note - the "entity" accounts for the trusts do not allow a WITH designation - the bonds can only be in the name of the trust. But since the trust itself controls who is a trustee - successor trustees when needed can gain access.)

If you haven't setup a will yet, great time to address that as well. We did this last year (had planned on doing it anyway, but COVID prompted us to act quicker just in case).
Last edited by SnowBog on Thu Jun 24, 2021 12:16 am, edited 1 time in total.
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Re: Buy I bonds in in-laws' names?

Post by Raspberry-503 »

Interesting. We have a revocable living trust for my wife and I, so you're saying the trust could buy another $20k on iBonds?
I'll have to look into that
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Re: Buy I bonds in in-laws' names?

Post by BrokerageZelda »

Raspberry-503 wrote: Wed Jun 23, 2021 9:49 pm Interesting. We have a revocable living trust for my wife and I, so you're saying the trust could buy another $20k on iBonds?
I'll have to look into that
One TD account per trust, and $10k per TD account. So the trust can only buy $10k.

If you have two separate trusts, each trust can buy $10k.
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Re: Buy I bonds in in-laws' names?

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Re: Buy I bonds in in-laws' names?

Post by gwe67 »

When you go hunting, do you take your in-laws along so you can shoot more deer?

I don't know why the rules limit your purchases, but those are the rules, and you should play along with them even if you don't agree.
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Re: Buy I bonds in in-laws' names?

Post by J295 »

Not a good idea.
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Re: Buy I bonds in in-laws' names?

Post by leeks »

wetgear wrote: Wed Jun 23, 2021 2:49 pm
DelawareAB wrote: Tue Jun 22, 2021 10:42 pm I would create and administer the account on TreasuryDirect.
As others have noted this might not be a good idea but I'm pretty sure the quote above is what makes this illegal. If you really want to move forward with this idea (it still is questionable) then at least get the in-laws to participate by opening and administering their own accounts, linked to their own bank accounts as TD intends.
+1
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Re: Buy I bonds in in-laws' names?

Post by SnowBog »

BrokerageZelda wrote: Wed Jun 23, 2021 9:52 pm
Raspberry-503 wrote: Wed Jun 23, 2021 9:49 pm Interesting. We have a revocable living trust for my wife and I, so you're saying the trust could buy another $20k on iBonds?
I'll have to look into that
One TD account per trust, and $10k per TD account. So the trust can only buy $10k.

If you have two separate trusts, each trust can buy $10k.
When we created our accounts, we just created an "entity" account (aka a trust account, not an "individual" account). Assuming you don't have a unique SSN for the trust (our living trust didn't), you just use the SSN of the person tied to the trust. So you end up with 2 accounts with the same SSN - one an "individual" account (in your name) the other an "entity" account (in your trusts name). Repeat for spouse and that's 4 accounts in total (if you have the trusts created).
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Re: Buy I bonds in in-laws' names?

Post by tibbitts »

It's amazing how many tactics people are coming up with and hoops they're willing to jump through to buy a modest quantity of an investment essentially guaranteed to lose money after inflation and taxes.
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Re: Buy I bonds in in-laws' names?

Post by BrokerageZelda »

SnowBog wrote: Thu Jun 24, 2021 12:20 am
BrokerageZelda wrote: Wed Jun 23, 2021 9:52 pm
Raspberry-503 wrote: Wed Jun 23, 2021 9:49 pm Interesting. We have a revocable living trust for my wife and I, so you're saying the trust could buy another $20k on iBonds?
I'll have to look into that
One TD account per trust, and $10k per TD account. So the trust can only buy $10k.

If you have two separate trusts, each trust can buy $10k.
When we created our accounts, we just created an "entity" account (aka a trust account, not an "individual" account). Assuming you don't have a unique SSN for the trust (our living trust didn't), you just use the SSN of the person tied to the trust. So you end up with 2 accounts with the same SSN - one an "individual" account (in your name) the other an "entity" account (in your trusts name). Repeat for spouse and that's 4 accounts in total (if you have the trusts created).
To clarify: I was under the impression that Raspberry-503 had one joint revocable trust with their wife; a joint revocable trust would have a $10k limit, even if it has two trustees (one of them would have to be designated as the "manager" trustee when setting up the TD account).
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Re: Buy I bonds in in-laws' names?

Post by Willmunny »

reply edited
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Re: Buy I bonds in in-laws' names?

Post by Raspberry-503 »

Correct we have only one trust so only another $10k so, thanks for the clarification
its amazing how many tactics people are coming up with and hoops they're willing to jump through to buy a modest quantity of an investment essentially guaranteed to lose money after inflation and taxes
.

It's amazing the gyrations so people go to open a bank account bearing interest well below that of iBonds, or use much riskier instruments to get similar returns on their cash. Heck, some people are till buying CDs at lower yields. I'm converting my emergency fund to IBonds because honestly there is nothing better or safer.

Also IBonds are pretty much guaranteed to keep their value after inflation, so I'm not sure I agree with the "lose money". The way I look at it is they're guaranteed to maintain your purchasing power, but yeah probably not much more.

Maybe they're not for you, but they have a role to play for anyone holding cash beyond their running expenses
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Re: Buy I bonds in in-laws' names?

Post by DelawareAB »

OP here. Thanks for everyone's feedback. The consensus seems to be clearly against this maneuver, so I will hold back for now. That said, I'm still thinking this over and have not been 100% convinced this is a bad idea.

It's interesting because my read of the relevant Code of Federal Regulations was that buying extra bonds in the name of a revocable trust was a MORE questionable maneuver than this. (It would be nice if Treasury offered some guidance as to whether a personal revocable trust could permissibly buy extra bonds; the current guidance and regulations seem worrisomely ambiguous to me.)

It seems like there are three basic objections to the buy-bonds-in-the-names-of-your-parents-or-in-laws maneuver.

(1) Losing control of the money.

This objection seems like the most persuasive but may be less relevant or irrelevant if the primary owners would be one's parents or in-laws (and we would be their ultimate beneficiaries/heirs anyway). I suppose there is a risk that our parents could become hostile and disinherit us (or become subject to creditors or decide that they would rather spend the money themselves), but those risks seem low at the moment.

(2) Tax issues

If the bonds are redeemed, our parents could theoretically be liable for the taxes. But this seems like something we can avoid without too much difficulty by electing to pay the taxes ourselves.

(3) Issues with creating/administering a TreasuryDirect account in someone's else name.

Maybe this could be addressed with a limited power of attorney? In any event, it's hard for me to imagine what actual negative consequences would result from creating/administering a TreasuryDirect account in one's parents' names (with their full consent). Would you be prosecuted for fraud? Expelled from TreasuryDirect for violating their terms of use? Both outcomes seem unlikely. I suspect there are millions of Americans who take some hand in managing their parents' finances, with or without a power of attorney.
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Re: Buy I bonds in in-laws' names?

Post by SnowBog »

DelawareAB wrote: Sun Jun 27, 2021 8:20 pm It's interesting because my read of the relevant Code of Federal Regulations was that buying extra bonds in the name of a revocable trust was a MORE questionable maneuver than this. (It would be nice if Treasury offered some guidance as to whether a personal revocable trust could permissibly buy extra bonds; the current guidance and regulations seem worrisomely ambiguous to me.)
This is incorrect. Buying in the name of a trust is a clear and well established practice. The website makes this clear. And there are numerous threads you can search here on the subject.

Several people on BH have been doing so for a long time... I started doing so this year, both my spouse and I have living trusts, successfully setup and purchased bonds in each (along with our own accounts).
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Re: Buy I bonds in in-laws' names?

Post by DelawareAB »

SnowBog wrote: Sun Jun 27, 2021 8:40 pm This is incorrect. Buying in the name of a trust is a clear and well established practice. The website makes this clear. And there are numerous threads you can search here on the subject.
Thanks. I hope that is incorrect because it would be nice to use a trust to buy more I bonds. But is it really the case that (1) I am limited to buying $10k worth of I bonds in my individual capacity but that (2) I can buy $10k more using a revocable trust of which I am the grantor, sole trustee, and sole beneficiary (and using my SSN as the trust's TIN)? If so, what is to stop me from creating six revocable trusts all with the same characteristics (but different names)?

The regulations allow purchases by entities but defines entity as "any owner of a TreasuryDirect account that is not an individual. Entity is a sole proprietorship, partnership, corporation, limited liability company or professional limited liability company, trust, the estate of a decedent, or the estate of a living person such as an incompetent or a minor."

Has Treasury offered any reassurance that it would not treat a revocable trust in which the grantor, trustee, and beneficiary are all the same individual as being essentially an individual account and not truly a distinct "entity"?

Maybe the situation is somewhat different for family trusts with multiple trustees, different beneficiaries, etc.
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Re: Buy I bonds in in-laws' names?

Post by Raspberry-503 »

This might help: https://www.treasurydirect.gov/indiv/he ... rnmore.htm

I have a Revocable Living Trust of which I am the trustee and administrator, under my SSN and address.
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Re: Buy I bonds in in-laws' names?

Post by SnowBog »

DelawareAB wrote: Mon Jun 28, 2021 10:21 pm
SnowBog wrote: Sun Jun 27, 2021 8:40 pm This is incorrect. Buying in the name of a trust is a clear and well established practice. The website makes this clear. And there are numerous threads you can search here on the subject.
Thanks. I hope that is incorrect because it would be nice to use a trust to buy more I bonds. But is it really the case that (1) I am limited to buying $10k worth of I bonds in my individual capacity but that (2) I can buy $10k more using a revocable trust of which I am the grantor, sole trustee, and sole beneficiary (and using my SSN as the trust's TIN)? If so, what is to stop me from creating six revocable trusts all with the same characteristics (but different names)?

The regulations allow purchases by entities but defines entity as "any owner of a TreasuryDirect account that is not an individual. Entity is a sole proprietorship, partnership, corporation, limited liability company or professional limited liability company, trust, the estate of a decedent, or the estate of a living person such as an incompetent or a minor."

Has Treasury offered any reassurance that it would not treat a revocable trust in which the grantor, trustee, and beneficiary are all the same individual as being essentially an individual account and not truly a distinct "entity"?

Maybe the situation is somewhat different for family trusts with multiple trustees, different beneficiaries, etc.
If you read prior threads on this subject, you will see that:
  • People have been using trusts to purchase extra bonds for years
  • To the best of my knowledge/recollection, I don't recall ever seeing a post were this was a problem...
  • The link in the post prior was specific to "entity" accounts. These are distinct from individual accounts. When you create a new account, you will create it as an individual account (you can have only one) or an "entity" account. While an entity might have the same SSN, such as in the case of a living trust, it is not an individual account. There is a clear distinction between an individual account for "SnowBog" vs. an entity account for "SnowBog's living trust dated xx/xx/xxxx".
  • Some of the prior posts have given detailed clarifications, included the documentation/citations from the Treasury
  • While less common, and I'm less certain, when I've asked in the past about having more than 1 trust - to essentially buy an unlimited number of bonds, I recall others saying such a practice was allowed provided the trusts were distinct. In other words each "entity" can have only 1 account, but if you have multiple entities each one could have their own account.
  • You'd obviously have the cost and complexity of setting up the extra trusts, not to mention managing them (and your estate handling them when the time comes). So I think this largely becomes a self moderating issue.
Last edited by SnowBog on Tue Jun 29, 2021 12:22 am, edited 1 time in total.
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Re: Buy I bonds in in-laws' names?

Post by Raspberry-503 »

Interesting! Sounds like the most legal way (if complicated) to get more I-bonds!
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Re: Buy I bonds in in-laws' names?

Post by JoeRetire »

DelawareAB wrote: Sun Jun 27, 2021 8:20 pm OP here. Thanks for everyone's feedback. The consensus seems to be clearly against this maneuver, so I will hold back for now. That said, I'm still thinking this over and have not been 100% convinced this is a bad idea.
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Re: Buy I bonds in in-laws' names?

Post by Wiggums »

JoeRetire wrote: Tue Jun 29, 2021 4:43 am
DelawareAB wrote: Sun Jun 27, 2021 8:20 pm OP here. Thanks for everyone's feedback. The consensus seems to be clearly against this maneuver, so I will hold back for now. That said, I'm still thinking this over and have not been 100% convinced this is a bad idea.
Whenever you are contemplating a tax law dodge, consult your attorney and/or CPA first. Then follow their advice.
+1

You want to put bond in another person’s name and SSN, link to your bank account, but control the logon credentials and call the money your own.

That sounds wrong to me.
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Re: Buy I bonds in in-laws' names?

Post by Raspberry-503 »

This may have been posted before, but another verification that using a trust is allowed, although I don't t believe everything I read on the Internet.

https://thefinancebuff.com/buy-more-i-b ... trust.html
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Re: Buy I bonds in in-laws' names?

Post by gwe67 »

Wiggums wrote: Tue Jun 29, 2021 5:47 am
JoeRetire wrote: Tue Jun 29, 2021 4:43 am
DelawareAB wrote: Sun Jun 27, 2021 8:20 pm OP here. Thanks for everyone's feedback. The consensus seems to be clearly against this maneuver, so I will hold back for now. That said, I'm still thinking this over and have not been 100% convinced this is a bad idea.
Whenever you are contemplating a tax law dodge, consult your attorney and/or CPA first. Then follow their advice.
+1

You want to put bond in another person’s name and SSN, link to your bank account, but control the logon credentials and call the money your own.

That sounds wrong to me.
Book 'em, Wiggums.

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Re: Buy I bonds in in-laws' names?

Post by celia »

To open an account in someone else’s name, you would need their permission (or that of their parents, if a minor) and their SSN. I wouldn’t want anyone messing around with my SSN, so please don’t open an account in my name. :)

If you explain this and the future tax implications to your in-laws, they may think similarly.


One downside not mentioned is if you die before them and they never have to return the money to you (or your immediate family).


Another is what happens after 30 or 40 years with no activity (ie, a forgotten account)? Do the feds ever send unclaimed money to your state’s unclaimed property division? I’m thinking about this as one of my kids received a bond as a newborn over 30 years ago and I don’t recall if we ever had possession of it or if the (now deceased) grandparents held it or whose name it might be in at Treasury Direct.

Thirty years is a long time and many things can happen during that time. Trying to set up a financial arrangement with someone else for that long is full of perils. Why, YOU may want to close out your bonds before that for some reason, and having some in another person’s name can get difficult, even if it was legal (which is questionable here).
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Re: Buy I bonds in in-laws' names?

Post by Lee_WSP »

A trust is a separate entity for tax purposes, but it is not a separate entity in and of itself. It is a fiduciary relationship. In the case of a living revocable trust, it is a fiduciary relationship with... yourself and some possible beneficiaries when you die.

I'm not going to cite to actual legal definitions, as they are a creature of state law, just the IRS's.

https://www.irs.gov/charities-non-profi ... of-a-trust

https://www.irs.gov/pub/irs-tege/eotopicf01.pdf
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Re: Buy I bonds in in-laws' names?

Post by LadyGeek »

The wiki was recently updated to clarify who (and what entities) can own I-bonds. See: I savings bonds (Who can own I bonds)
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