Can You Gift Treasury Bonds? 6 Steps to Correctly Transfer Securities

Daniel Penzing
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Transfers of Securities from Legacy Treasury Direct to TreasuryDirect

Can you gift securities?

Yes. You can gift securities if the account owner agrees to gift the securities. Although there are some recordkeeping and tax reporting consequences of the gifting process, they are minor compared to the benefits of the gift.

When you gift securities, the gift is irrevocable. This means that you can never take the securities back.

What if the recipient of the gift doesn’t want to give them back?

They could, but it would be a breach of your agreement. The value of the gift would be treated as income to the recipient. If you signed your name as a “giver” of the gift, the IRS may want to impose a “gift tax” on the gift.

Why would you want to gift securities?

There are many reasons to gift securities:

Saving on capital gains taxes- If you are donating securities having appreciated in value, this is a great way to transfer the security without facing a capital gains tax on the appreciation. If you get cash, that is a taxable event.

Transfer of Securities from the Commercial Book-Entry System to TreasuryDirect

You can electronically transfer securities from the commercial book-entry system to your TreasuryDirect account using Form 1099-INT or Form 1099-OID.

Follow the instructions for each form to electronically transfer each type of security. See the FAQs for help on completing and saving the correct form and on electronically transferring securities. Also, be sure to complete Form 8888, Reportable Transaction Disclosure Statement.

Although you must file Form 8888 with your tax return, the Commercial Book-Entry transfer is not a reportable transaction. For assistance in determining if the transfer will trigger a gift tax, refer to the Form 8888 instructions. At the time of the transfer, Treasury will establish a maturity date for the securities.

Transfer of Securities from TreasuryDirect to the Commercial Book-Entry System

(CETS)

Treasury securities registered in your name in TreasuryDirect can be transferred to a financial institution that participates in CETS. With CETS, you can specify how you want the securities registered in your name transferred into CETS and permanently recorded. You can instruct the financial institution to register the securities in your account in the following ways:

Marked-to-Market (MTM)

Transfer the MTM to a new or existing investment account marked to the same market value you had in TreasuryDirect. Your new account will be set up and the securities will be transferred to it in the quantity in which they were registered in TreasuryDirect. Cash-Equivalent

Transfer the securities to a new or existing account in cash-equivalent in the same denomination in which they were registered in TreasuryDirect. You can do this regardless of the market value you had in TreasuryDirect. If you transfer an MTM to a cash-equivalent, or transfer a cash-equivalent to an MTM, you will not have to pay an execution fee.

To transfer securities to CETS in the above ways, you must fill out a "Transmittal of Treasury Securities instructions for a Wire- and Cash-Equivalent Transfers" form in TreasuryDirect and submit it to the registered financial institution where you want the securities transferred.

Transfer of Securities from Legacy Treasury Direct to the Commercial Book-Entry System

(CBS)

From time to time, Treasury Direct investors contact FINRA with questions about how to transfer securities from legacy Treasury Direct to the Commercial Book-Entry System (CBS) (FINRA form 8551-F), or about how to gift securities to someone else.

Per FINRA account-holding rules, the shareholder of record must contact the FINRA Transfer Agent (CST Trust Company), to complete the transfer. Please follow the 6-step procedure below to correctly gift securities from Treasury Direct to another person.

Transfer of Securities within TreasuryDirect

The Gift Transfers (TreasuryDirect) screen allows you to transfer securities to another TreasuryDirect account owned in your name or to a third party with a TreasuryDirect account. You can also send a Gift Notification email to the recipient.

Note: If you are gifting securities from the live account of another, the primary account holder must first be set as the Account Manager for the second account. Both accounts must have power of attorney.

To transfer securities with Gift Transfers (TreasuryDirect) do the following:

{1}. On the main menu, click Security Transfers to go to Gift Transfers (TreasuryDirect).
{2}. Choose the account that you want to transfer from.
{3}. Choose Gift from the Transfer Type drop-down menu, and select Send Gift Transfer.
{4}. Enter the recipient’s information in the Recipient Information section of the Gift Transfers (TreasuryDirect) screen.
{5}. If you want to notify the recipient by email, enter the email address and optional message in the Email Address and Message sections of the screen.
{6}. Check that the information is accurate and correct, and click the Transfer button.
{7}. On the next screen, click the Review Transfer Details button.

Transfer of Securities within Legacy Treasury Direct

In the TreasuryDirect.gov FAQs under Legacy Accounts, we have provided the following information relative to the ownership and transferability of securities in a Treasury Legacy Account:

How can I transfer my Treasury securities among my Legacy Accounts? Beginning August 4, 2009, you can transfer securities from one Legacy Treasury Direct Account to another. To transfer Treasury securities, go to the Transfer tab in the Account Maintenance Center. You can also transfer securities from one Legacy Treasury Direct Account to another by submitting a written request to Treasury

Be advised, however, that the Transfer tab in the Account Maintenance Center was designed for the transfer of ownership of securities between your Legacy Treasury Direct Accounts.

When you transfer ownership of securities, you are considered the owner of the transferred securities and can deposit them in an external account.

You may be subject to an Internal Revenue Service 20% penalty if you transfer ownership of securities you inherited or are subject to court order.

Limits on Gifts for Income Tax Purposes

Gifts from one person to another are generally “non-taxable transfers” for income tax purposes. But if an individual gives an interest in property to another person for less than it is worth, the IRS may see the gift as something entirely different—more like a sale. In that case, the IRS may assert that the donor realized income when he or she made the gift.

Here are 6 steps to help keep you from running afoul of the IRS.

Transfer Tax Free

Steps to follow to make a gift tax free:

Step 1 Have a clear agreement with the recipient.

Make sure the recipient knows the details. Specify that the gift is complete, unconditional and cannot be repaid or collected.

Give the recipient an irrevocable right to use the property without any restrictions.

If there is a restriction or condition on the gift, the IRS may view this as a security interest and convert the gift to a loan.

A proper description of the bond is very important.

Step 2 Provide the recipient with a gift letter or a separate promissory note (i.e., document drafted by an attorney).

This document contains the following:

a statement that the transfer is intended to be a gift, and not a sale;