Flower Bond Law and Legal Definition

Flower bond is a U.S treasury bond recoverable before maturity upon payment or fulfilling a condition, if used to settle federal estate taxes. When flower bonds are surrendered in payment of taxes, and accepted as such, that constitutes payment of those taxes for statute of limitations and statutory interest purposes. Flower bonds were issued before April 1971 and reached final maturity in 1998. Flower bonds which can be used to pay federal estate taxes have a fair market value at date of death equal to the par value of the bonds. That is because the special use of the bonds establishes a fair market value of par as they are redeemable at par in payment of the federal estate tax liability. Any flower bonds owned by the decedent which cannot be redeemed to pay death taxes are valued at the prevailing fair market value at the date of decedent's death or the optional evaluation date if that valuation date is elected. The reason for such valuation of the flower bonds which cannot be redeemed for payment of death taxes is obvious; that is, they can only be sold on the open market; they cannot be redeemed at par.

Following is an example of a case law defining the term “flower bond:

“Flower bonds" have been defined as follows: A type of debt instrument issued by the Department of Treasury pursuant to the Second Liberty Bond Act, 31 U.S.C.S. § 752 (1976). They are long-term bonds that carry an unusual feature with respect to federal estate tax payments. Although not otherwise redeemable by the owner prior to maturity, these bonds are redeemable at par value, plus accrued interest, upon the death of the owner for the payment of federal estate taxes on the deceased owner's estate. The bonds are known as flower bonds because of the flowering to early maturity upon the owner's death.” [Weld v. United States, 31 Fed. Cl. 81 (Ct. Cl. 1994)].