What Is a Death Put on a CD and How Does It Work?

A Certificate of Deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years. Financial institutions pay interest on these deposits, which typically offer higher rates than standard savings accounts in exchange for the money being locked up for the CD’s term. While CDs are generally considered low-risk investments, some include a specific provision known as a “death put” feature, which offers flexibility under certain circumstances.

Defining a Death Put Option

A death put option grants the holder or their beneficiaries the right to sell an asset back to the issuer under specific conditions. When applied to Certificates of Deposit, this feature allows for the early withdrawal of CD funds without incurring typical early withdrawal penalties. The purpose of a death put is to provide liquidity to the beneficiaries or the estate of a deceased CD holder. This prevents the estate from being locked into a long-term investment when immediate access to funds is necessary for settling affairs.

This provision is not a universal characteristic of all CDs; it is an optional feature offered by certain financial institutions as part of their product offerings. The inclusion of a death put makes a CD valuable for investors engaged in estate planning. It ensures that, upon the investor’s death, heirs can access the principal and accrued interest without penalty, protecting the investment’s value.

Activating a Death Put on a CD

Exercising a death put option on a CD begins with the beneficiaries or the executor of the deceased’s estate notifying the financial institution. This notification should occur promptly after the CD owner’s death, usually within a specified timeframe. The institution will then provide instructions on the steps to redeem the funds.

Upon receipt of the required documentation, the financial institution processes the redemption of the CD. The full principal amount of the CD, along with any interest accrued up to the date of redemption, is then released. This process allows the beneficiaries to access the funds without early withdrawal penalties. The death put facilitates the smooth transfer of assets during estate settlement.

Key Aspects to Consider

Beneficiaries or executors should consider several key aspects. Eligibility for exercising the death put often applies to CDs held by individual owners, though specific rules may govern joint accounts or those held within trusts. Financial institutions typically require a certified copy of the death certificate to verify the CD holder’s passing.

Additional documentation may include identification for the beneficiaries or the executor, along with legal documents such as letters testamentary or trust agreements. The exact timeframe for exercising the death put can vary among financial institutions, so reviewing the original CD agreement is essential. Some institutions may permit partial redemptions, while others require the full amount to be withdrawn. Interest typically continues to accrue on the CD up to the date the death put is exercised and the funds are disbursed.