Expert: Doug Ingram - 10/22/2007

Question
QUESTION: I'm aware of the advantages of Muni Bonds.  What could be the potential downsides for an 84 year old that doesn't need an income stream.
What happens on death?  Is it possible that the bond would be required to be sold at a discount?
Thank you!

ANSWER: Munis are a good investment for safety and income.  The downsides would be if you chose a risky issue that defaulted.  If you stay with quality issues, they should be ideal.

At death, what happens is what is in your will!  Where you can retire banks CDs before maturity, the same is not usually the case for munis.  They would continue to pay interest in your account to your estate until they mature.  It could be that they could be sold with a gain.  (If fact, they can be sold at any time, and most folks hold bonds for their liquidity as well as safety.)
Your executor could sell them at a higher price if they have better rates than the prevailing market rate, or at a loss if rates have risen.

---------- FOLLOW-UP ----------

QUESTION: How long are Muni's typically?

Answer
Like most bonds, they are issued to accomplish a task like building a school or a water district.  They issue debt and have bonds that mature at various dates.
Many issues might have an amount maturing each year from 2 years out to 20.  Some might start at 5 years and go out to 30.  It depends on how the utility, state, city, etc. thinks they can pay back this debt.  They also have call features which allow them to pay it off earlier if they can borrow at a cheaper rate.
In the same way the Treasury has Tbills, Notes, and Bonds, you can also find Munis with very short time frames.  (90 days to a year for example).