If you are beneficiary of an Estate, at some point you will be asked to sign a Refunding Bond and Release prior to receiving your bequest from an Estate. The logical question that will arise is what exactly you are being asked to sign. The purpose of this blog is discuss generally what a Refunding Bond and Release is and how it relates to your distribution from the Estate.
During the administration of an Estate, the executor is charged with marshaling the assets of the Estate so that they can be distributed to the beneficiaries of the Estate. During this process, the executor keeps detailed records of the Estate’s assets and maintains an accounting of all assets and liabilities of the Estate. The executor is also responsible for filing and paying any relevant Estate taxes on behalf of the Estate, and remains principally liable should he/she not properly perform this function. Once the appropriate taxes are filed, or are close to being finalized, the executor will commence making distributions of the assets of the Estate.
In order to safeguard the Estate, as well as the executor from potential future tax liability or questions related to the accounting, the executor will ask a beneficiary to sign a refunding bond and release prior to receiving a bequest. There are two main reasons that an executor asks a beneficiary to sign such a form.
The first reason is that the executor is asking the beneficiary to approve of the actions they have performed to date in administering the Estate should the executor attach a current accounting of the Estate to the refunding bond and release. In such an instance, appropriate language will appear in the refunding bond and release which releases the executor from all actions set forth in the accounting. This may result in the partial release of liability that the executor may have towards a beneficiary.
The second, and main reason that the executor requires a beneficiary to sign a refunding bond and release is to enter into an agreement with the beneficiary whereby the beneficiary agrees to return a portion of their bequest to the estate should unanticipated tax liabilities or other liabilities arise and there are insufficient estate assets to pay the expense. Should such an unexpected liability arise, the beneficiaries would return to the estate part of their bequests in the same percentage in which they received same. Although this is a possibility, it is highly unlikely to occur provided all Estate expenses were paid and appropriate taxes were filed that were properly prepared by a professional with experience in this area. Nonetheless, this is common practice in estate administration and I require all beneficiaries of an estate to sign such a form.
If you are a beneficiary of an estate and you are presented with a refunding bond and release it is highly suggested that you require the executor to produce a current accounting at the time you sign this form. This ensures that if you have any potential objections to the accounting that you raise them prior to signing the release, thereby preserving your right to seek these exceptions in the future. Also, it makes sense to require the production of a current accounting so that you have an idea as to the current distributions from the Estate, as well as any future bequests you might receive. It is suggested that if you have any concerns about signing the refunding bond release, or that the estate is being administered properly that you seek appropriate representation to assist you through the process.