How are Treasury Bills and Series E/EE Bonds priced?

United States Treasury Bills and Series E/EE Bonds are simple securities that can suddenly become very confusing when they are evaluated on the Alternate Date. They don’t seem to follow the rules—the value that appears on the Alternate Date report is exactly the same as the value that appeared on the Date of Death! Other securities don’t behave that way. Why these?

To explain, let’s take a look at the securities:

Treasury Bills: Issued for a term of one year or less, Treasury Bills do not bear a stated interest rate. Instead, they are purchased at a discount from their face value and accrue interest up to the face value over their lifetime.

Series E and EE Bonds: Like Treasury Bills, Series E and EE Bonds are also bought at a discount and do not bear a stated interest rate. They also accrue interest as they approach maturity, but may sometimes be ultimately valued higher than the face value of the Bond.

T-Bills and Series E/EE Bonds do not pay interest on a periodic basis, unlike corporate and municipal bonds.

The chart below contains the valuation of a Treasury Bill on five different dates. As one would expect, the total security value of the T-Bill increases as the maturity date nears, finally reaching par on the day the T-Bill matures.

Each value listed above is the combination of the purchase price of the T-Bill and its accrual. This combination hides the fact that it is the accrual that is growing, not the principal.

EstateVal, however, can show you how the value of the T-Bill is actually changing. To do this, you must tell the program how much the original purchase price of the security was. From the portfolio you wish to edit:

• Select the appropriate security and click the Adjust Inventory button.
• Enter the original purchase price into the Purchase Price: field and press OK.
• Evaluate the portfolio.

Now, the same information is displayed this way:

What’s important about separating these two values is that you can easily see that it is the accrued interest on the T-Bill that is changing, not the principal. This is significant because, according to IRS regulations, an accrual is valued the same on the Alternate Date as it is on the Date of Death.

Given this, all Treasury Bills and Series E and EE Bonds in your portfolio will have the same value on your Date of Death report as on your Alternate Date report — the principal of the securities isn’t changing; it’s the accrual that’s growing. And that accrual is income to the estate, rather than to the decedent.