What is a Flower Bond?
A flower bond is a type of bond issue that was once offered in the United States. Considered to be one example of estate tax anticipation bonds, the idea behind this type of investment opportunity was to offset any estate taxes that might be assessed on an investor’s estate once he or she passed away. With a flower bond, the issue would mature at the par value when the bondholder died, freeing the proceeds from the bond to help settle any estate taxes that were assessed.
The purpose for a flower bond made it somewhat unique, in that most bond issues do have some sort of minimum amount of time that the bond must be held in order to earn any type of return. With this type of issue, an individual could purchase the bond, pass away six months later, and the bond could be cashed in to help settle any estate taxes due. It is important to note that unlike other bond issues, the cost price was irrelevant to the amount of cash that was made available to settle estate taxes. Instead, the current par value determined the amount of money ultimately earned from the bond.
With a flower bond, individuals created a means of at least partially settling any estate taxes that came due at the time of death. This meant that more of the estate’s assets ultimately went to heirs and other beneficiaries. When used in conjunction with other types of financial arrangements that provided tax breaks, the flower bond was effective in making sure loved ones were provided for when the bondholder passed away. The extent to which a flower bond provided any significant aid in this endeavor was debated for a number of years, with some holding the bond provided nothing more than minimal support in settling estate taxes.
Over time, other strategies for managing estate taxes began to appear, making use of changes in tax laws to help minimize the burden to estates and any heirs of those estates. As a result of what many considered more effective means of planning for the calculation and payment of estate taxes, bonds of this type have not been issued in the United States since 1971. According to most sources, the last flower bonds matured in 1998, with a coupon of three and a half percent. There are currently no plans to revive this particular type of bond issue, although discussions of creating some sort of similar bond program does arise from time to time.
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