Every Christmas when I was a kid, Grandpa Paulie would give me a $50 EE savings bond. These pink slips of paper weren’t nearly as exciting as the new Barbie outfits and Nancy Drew books I unwrapped. Some (many) years later, however, the 4%-plus rates on those long-neglected pink papers have greater appeal.

As a modest bond-holder, I’m in good company. The Treasury Department estimates that more than $140 billion of savings bonds have been issued, with much of that in $25, $50 and $100 increments. Not all of these bonds enjoy the relatively high interest rates of decades-old EEs. All provide the same income deferral, however, with interest taxed only when the bonds mature, are redeemed or are transferred.

It’s that last option – transfer – that poses a trap for the unwary. Transferring (technically, re-registering) savings bonds triggers taxable income to the donor. In other words, if you were to contribute savings bonds to charity, you’d pay income tax at rates of up to 39.6% for the privilege of making that gift.

An exception to this unfortunate rule is transfers that take place upon death. By including a simple provision in your will or related estate-planning documents, your attorney can direct your U.S. savings bonds to a charity like the Community Foundation, which can then cash in the bonds free of tax.

Grandpa Paulie would be proud.

Kim Petersen is Vice President of Gift Planning with the Community Foundation for the Fox Valley Region. Email her at [email protected].