Flower Bonds are fixed income products those were originally purchased by investors at a discount for the purpose of paying federal estate taxes upon their maturity. The term “Flower Bond” apparently developed because these bonds blossom or mature after death.
Investors would purchase these bonds before their death in anticipation of federal estate taxes. If the bondholder passed away, the bonds would mature at par value and be used as payment for the deceased's federal estate taxes.
A tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. The estate tax is mostly imposed on assets left to heirs, but it does not apply to the transfer of assets to a surviving spouse. The right of spouses to leave any amount to one another is known as the "unlimited marital deduction".
When the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. Because the estate tax can be quite high, careful estate planning is advisable.
In 1997, a change in U.S. laws increased the value of assets that a beneficiary may exclude from federal estate taxes - though many states have their own estate taxes. With this change of laws, small business owners became able to pass on farms and other qualifying businesses to their heirs.
The ‘Flower Bonds’ had the advantage when estate taxes are paid. Under no circumstances the purchase of Flower Bonds in the name of the Child is recommended. However, individuals who expected to leave a large estate, purchasing Flower Bonds in their name is considered to be a good decision.
“Flower Bonds” are certain U.S. Treasury bonds that have an advantage when they pay Federal Estate Taxes. They picked up that strange moniker because they come in handy when funeral wreaths arrive. The face value of those bonds can be used to satisfy a federal estate tax obligation you leave behind.
As per the information dated 1988, Flower Bonds where trading in the marketplace at about 95 percent of their face values, meaning that someone can buy $100,000 face value of those bonds for about $ 95,000. Then when the investor leaves their vale of tears, the bonds $100,000 face value can be applied against federal estate tax.
According to David Mayers and Cliff Smith analysis, the market value of a Flower Bond should be equal to the sum of the values of a straight government bond with the same coupon and maturity plus a net single premium for the imbedded term life insurance.
Flower bonds stopped being issued in 1971, and the last of them, with a 31⁄2% coupon, matured in 1998.
In the absence of the Flower Bonds some of the U.S. based Estate Planning firms recommend life insurance (Information obtained from Private estate planning online advertisements).
***
Cheers
Naveen Victor.
Reference:
- Death and Taxes : The Market for Flower Bonds : Discussion by Robert C. Witt (1987)
- Investopedia
- St. Petersburg Times – Oct 4, 1988
Investors would purchase these bonds before their death in anticipation of federal estate taxes. If the bondholder passed away, the bonds would mature at par value and be used as payment for the deceased's federal estate taxes.
A tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. The estate tax is mostly imposed on assets left to heirs, but it does not apply to the transfer of assets to a surviving spouse. The right of spouses to leave any amount to one another is known as the "unlimited marital deduction".
When the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. Because the estate tax can be quite high, careful estate planning is advisable.
In 1997, a change in U.S. laws increased the value of assets that a beneficiary may exclude from federal estate taxes - though many states have their own estate taxes. With this change of laws, small business owners became able to pass on farms and other qualifying businesses to their heirs.
The ‘Flower Bonds’ had the advantage when estate taxes are paid. Under no circumstances the purchase of Flower Bonds in the name of the Child is recommended. However, individuals who expected to leave a large estate, purchasing Flower Bonds in their name is considered to be a good decision.
“Flower Bonds” are certain U.S. Treasury bonds that have an advantage when they pay Federal Estate Taxes. They picked up that strange moniker because they come in handy when funeral wreaths arrive. The face value of those bonds can be used to satisfy a federal estate tax obligation you leave behind.
As per the information dated 1988, Flower Bonds where trading in the marketplace at about 95 percent of their face values, meaning that someone can buy $100,000 face value of those bonds for about $ 95,000. Then when the investor leaves their vale of tears, the bonds $100,000 face value can be applied against federal estate tax.
According to David Mayers and Cliff Smith analysis, the market value of a Flower Bond should be equal to the sum of the values of a straight government bond with the same coupon and maturity plus a net single premium for the imbedded term life insurance.
Flower bonds stopped being issued in 1971, and the last of them, with a 31⁄2% coupon, matured in 1998.
In the absence of the Flower Bonds some of the U.S. based Estate Planning firms recommend life insurance (Information obtained from Private estate planning online advertisements).
***
Cheers
Naveen Victor.
Reference:
- Death and Taxes : The Market for Flower Bonds : Discussion by Robert C. Witt (1987)
- Investopedia
- St. Petersburg Times – Oct 4, 1988
No comments:
Post a Comment