According to IRS Pub 550, Series HH bonds pay interest to the owner every 6 months until maturity. If the bonds reached maturity in 2010, the owner should have already reported all of the interest earned by the Series HH bond. This leaves the deferred interest to deal with. Redeeming the Series HH bonds after maturity should only result in the deferred interest being taxable income. The deferred interest is taxable income to the recipient (beneficiary in this case) in the year that the Series HH bond is redeemed and will be reported on a Form 1099-INT issued to that recipient. This should mean that if the bond is redeemed while still part of the deceased's estate, it will be income to the estate and, since the deferred interest is more than $600, it will be reportable on the estate's income tax return Form 1041 and probably the income will be passed through to the estate beneficiary(s) on Schedule(s) K-1. If the bond itself is distributed to an estate beneficiary and the estate beneficiary redeems the bond (or the bond had your name listed as an owner), the estate beneficiary (or you as a named owner) will be the one receiving the Form 1099-INT and reporting it on their (your) individual tax return.
