By: Martin M. Shenkman, CPA, MBA, JD
This legal document may be essential to protecting yourself if your an executor planning to make a distribution. In the context of administering an estate (probate) a refunding bond is a document which the executor (personal administrator) who manages the estate has a beneficiary sign, in many cases, before making a distribution. In this agreement the beneficiary agrees that if the funds or assets distributed are needed by the estate (and this "need" could be limited to paying taxes or taxes and expenses, or a lawsuit) the beneficiary will return or "refund" the distribution to the estate. Since the executor can be held personallony liable for unpaid estate taxes, for example, the executor should make sure that if distributions are made prior to the final determination of estate taxes by the IRS and any state tax authority, that a refunding bond is signed before a distribution is made. From the beneficiary's perspective, signing a refunding bond may enable or entice the executor to make distributions earlier in the estate administration process (e.g. a partial distribution of some of the cash and assets which are unlikely to be needed). However, a beneficiary signing a refunding bond should also understand that it is possible that the distribution may have to be returned so spending the distribution quickly after receipt is not always advisable. This legal document is also referred to as a "Release and Refunding Bond". In this latter document the beneficiary, in addition to agreeing to refund the distribution, is also asked to release the executor from any claims.
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