What Does "Death Put'' Mean on a Bond?

A death put allows the new holder of a bond to sell the bond without paying redemption penalties after the original owner dies. A death put option allows the estate manager to sell bonds that the decedent owned to pay off debts and estate taxes. Death put bonds are also known as survivor's option bonds, because the survivors of the decedent receive the right to cash out the bonds.


If the estate manager exercises the death put, the bond issuer has to immediately redeem the bond at its par value, or face value. The issuer has to pay the face value of the bond even if interest rates have increased since the issuer sold the bond, so the bond would be less valuable than other bonds if it didn't have the death put option.


The presence of the death put option reduces the bondholder's return on the bond. The bond seller will have to come up with the cash for the bond if the estate manager uses the survivor's option. This could require the seller to issue new bonds at a higher interest rate, so the bond seller will pay less interest on the bond because of this additional risk.

Use Rights

Only the estate manager can use the death put option. The estate manager has to exercise this option before transferring ownership of the bonds to the heirs. The estate manager does not have to redeem the bonds. If interest rates dropped since the initial sale of the bonds, keeping the bonds is preferable to redeeming them since they will pay more interest than any other bonds that the heirs can buy at the same risk level.


There may be other restrictions on the death put option. A corporation may limit the value of bonds that the estate manager can redeem during a single year, either by percentage of the outstanding bonds or by total value. The corporation may also place a limit on the amount that each individual heir can receive from the redemption each year. According to the Davidson Investment Group, a typical redemption limit is $200,000 per heir per year.


Death put options are available on many different types of bonds. Corporate bonds can offer this feature, as well as Treasury bonds. According to Raymond James Financial, certificates of deposit, which often have a shorter term than bonds, may also offer a survivor's option. The estate manager usually has to wait at least six months after the decedent's purchase of the debt security to exercise the death put option.