Survivor Options On Bonds

A popular estate planning feature.

provided by Jacob Warren

Have you heard of the “survivor option”? How about a “death put”? These rather bleak terms reference a very useful choice for beneficiaries who inherit certain kinds of corporate bonds. This option has become increasingly common.

What does a death put do? If a bondholder dies before a bond reaches maturity, a death put lets the beneficiary sell the bond back to the bond issuer at face value. If your children inherit a corporate bond from you, a death put may be a much better choice than keeping the bond until maturity or selling it in the secondary market.

Why has it become so attractive? Look at the current interest rate environment. If rates go up and beneficiaries decide to sell a corporate bond before maturity, they may have to take a loss. With a survivor option, that problem is off the table. If your heirs exercise the death put feature, they will be able to redeem the bond at par value even if it is trading at a steep discount.

Of course, this feature comes at a price. It is a “sweetener” – one of those things you pay for up front or indirectly via a lesser return rate on the security.

Are there limits on survivor options? Most certainly. Most retail bond issuers will only take back a small amount of their bonds in a year (in the neighborhood of 1-2% of the original retail issue). There is also usually a per-estate limit ($200,000 par value per estate is a typical figure).1

Often issuers require a minimum holding period before a survivor option can be used – a year from the original issue date is common. If a bondholder dies before those 365 days go by, his or her estate must hold the bond until the one-year window closes.2

One more detail to note: the beneficiaries of the bond have to implement the survivor option before they take possession of the bond. For the option to be used, the bonds must be held in the deceased bondholder's account.2

Do your bonds have a survivor option? Do your loved ones know about that feature? You and your beneficiaries will want to acquaint yourself with the details. If you don’t own bonds with a survivor option, ask a financial professional for information on them.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464









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Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.



Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.

Citations.
1 cfainstitute.org/memresources/communications/privatewealth/2009/august/article_3.html [8/09]
2 incapital.com/index.cfm?fuseaction=newsArticles.viewArticle&NewsID=100223 [7/19/05]