Naming a TOD Beneficiary for Government Bonds and Notes

If you own certain kinds of government securities, you can name someone to inherit them without probate.

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If you own certain kinds of government securities, including Treasury bills and notes and savings bonds, you can name someone to inherit them without probate.

Registration in Beneficiary Form

To do this, you must register ownership of the securities in "beneficiary" form. You simply register ownership in your name, followed by the words "payable on death to" and the name of your beneficiary. The beneficiary must be a person, not an organization. (31 C.F.R. Parts 315.6 and 353.6.) If the beneficiary is a minor, you must specify that—for example, by writing "payable on death to Jasmine Martin, a minor." After your death, ownership will be transferred to the person you named.

As with corporate securities, you'll have complete control over these assets. You don't need the beneficiary's consent to sell or give away the securities, and you can name a different beneficiary at any time by filling out new ownership documents.

One significant limitation on adding a payable-on-death beneficiary is that there may be only one primary owner and one beneficiary. You can't name a payable-on-death beneficiary if the securities are co-owned by two or more people—you and your spouse, for example. In that situation, the best you can do is to create a right of survivorship, so that the surviving co-owner inherits the securities when the first co-owner dies. Then, the survivor could add a beneficiary designation.

EXAMPLE: Marilyn and her husband Richard buy Treasury bonds and notes, and hold title to their account as "Marilyn Vanderburg and Richard Vanderburg, with right of survivorship." Many years later, after Marilyn's death, Richard changes the title to add their adult daughter as the beneficiary. Now, the title is held as "Richard Vanderburg, payable on death to Melissa Vanderburg."

Naming Alternate Beneficiaries

You cannot name an alternate (contingent) beneficiary to inherit the bonds if your first choice does not survive you. So if naming an alternate is important to you, think twice about using the beneficiary form of registration. If you want to name a specific alternate to inherit your government securities without probate, you'll need to use another probate-avoidance method, such as a living trust.

Before you get too concerned, though, weigh several factors, including:

  • Your age, and that of your beneficiary. If your primary beneficiary died, do you think you would be able to handle the paperwork to name another beneficiary?
  • The value of the securities. If the securities went through probate, would that impose a large expense on whomever inherits them?
  • The person you've chosen as your residuary beneficiary of your will. If you're happy with that person as a backup beneficiary, you don't have a problem.

Buying Government Securities

If you want to buy government securities directly, not through a broker, you can do so online at www.treasurydirect.gov, which also offers lots of information about savings bonds and treasury securities. 

You can also contact a Federal Reserve Bank servicing office. Every large city has one, as do a fair number of medium-sized cities. Ask for a Treasury Direct Tender package. It should contain a booklet called Buying Treasury Securities and copies of the forms you need.

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