Probate bonds are a type of insurance in the area of estate planning. How can you ensure the executor or trustee honors their responsibilities after creating your will or trust? It’s challenging to watch things when you’ve passed away.
Because of this, probate bonds are one popular way to ensure that the people in charge of the estate and its beneficiaries are held responsible and acting in their best interests.
You may wonder what a probate bond is. Discover the meaning of a probate bond, its functions, and other crucial information and details by reading about it.
What is a probate bond?
A court may order and demand a “probate bond” bond before appointing an individual or organization as its representative within an estate, including an administrator or executor. A probate bond, also known as a fiduciary bond, holds this person responsible so they carry out their obligations to the estate in good faith.
If you are familiar with the probate process and the responsibilities of an administrator or executor, you can better grasp the definition of a probate bond. It is necessary to file a petition or a death certificate after a person passes away to initiate the probate procedure for the decedent’s inheritance. Usually, this person asks the court to appoint them as the estate’s representative. A deceased person’s will frequently specifies who should be appointed as executor. Because they had no will, they passed away intestate, which means the court will choose the administrator.
The chosen executor or administrator will be in charge of overseeing both estate and probate procedures after the court determines the request. They must identify the decedent’s assets and notify any possible creditors and heirs of the death. They subsequently transfer their assets toward the estate to cover funeral costs, debts, and taxes. The executor is empowered to distribute any remaining assets, inventory, and property to the estate’s heirs after settling all liabilities. The estate closes if the court confirms that its executor has completed all their duties.
You may have seen that an estate is mainly under the jurisdiction of the executor (or administrator). They are trusted to handle the property and assets held in an estate in good faith, in addition to having access to them. How can one tell if an executor is reliable and honest? A court frequently orders a probate bond to ensure they perform their obligations honestly.
What is the procedure for obtaining a Probate Bond?
The search for a trustworthy surety bond company is the initial step in getting a probate bond. The surety bond firm will typically ask you to fill out an application, and the underwriter will review the application and decide.
The underwriter may require the following information:
- Any court records mentioning the bond.
- A documented justification for your appointment or selection as the fiduciary.
- Clarification of the transitory or unusual nature of the fiduciary’s position.
- A list of the beneficiaries or heirs to the estate of the deceased.
- A copy of the trust or will.
The underwriter must assess whether the applicant is capable and trustworthy enough to be bonded during the underwriting process. A study of the applicant’s credit report typically informs most underwriting decisions (FICO score). The underwriter can also be curious about the applicant’s financial acumen. Does the candidate, in other words, possess the financial know-how necessary to manage the estate?
The underwriter may execute (complete) the surety bond if an applicant is granted permission to post one. The bond is finally filed in court after being mailed in hard copy to the applicant (or the applicant’s attorney).
How does a probate bond work?
A personal representative is frequently required to buy a probate bond before being chosen by the court as an administrator or executor of an estate. Even though they aren’t the same, a probate bond and an insurance policy function similarly. As a result, the personal representative must use their money to pay for the bond from the surety bond. Although it is a legal estate expense, they can usually pay themselves back when the estate opens.
Anyone may now assert a claim against a particular bond. For instance, an heir may submit a claim to the surety company if they suspect that the administrator is stealing money from the estate. After that, the firm will look into the allegation to see if it is true or false. The surety business will settle the claims if they think it is legitimate. If they cannot settle the issue independently, they will intervene and demand full payment from the bondholder.
These bonds help defend beneficiaries and estates against theft, fraud, and other wrongdoing. A fiduciary may be accountable for any of the following, depending on the circumstances:
- Keeping track of and safeguarding an estate’s owed assets
- Making contact with beneficiaries and possible heirs
- Obtaining appraisals of an estate
- Repaying debts
- Making sure taxes are computed and paid accurately
- Disbursement of assets
- Making choices about someone else’s care
Benefits and Drawbacks of Probate Bonds
Probate bonds protect heirs if the executor violates their fiduciary duties. The probate bond could assist you in recovering the financial risk you sustained due to the executor’s conduct.
The existence of a probate bond might also be a reminder to an administrator of their obligations. It might compel them to act per their fiduciary obligations to avoid having to compensate beneficiaries for damages.
Probate bonds have one drawback: Not all states mandate executors to obtain these to handle the estate administration. There is no built-in safety net if you reside in a state wherein probate bonds aren’t needed. However, you still have the option of suing an executor for a breach of fiduciary responsibility or, at the very least, requesting that they be fired.
How much does a probate bond cost?
Probate bond costs vary. Depending on the size of its estate, they usually begin at about 0.5 percent of a bond’s total value. In other words, among other things, the amount of the estate affects the price of the probate bond.
Fortunately, a personal representative need not foot the entire bond expenses; they merely have to provide a tiny amount.
Take the scenario where you submit a petition to start the probate process for an estate. The court has given you permission to serve as its executor of an estate, but you must first acquire a $250,000 probate bond.
In this case, you won’t need to spend $250,000 to buy the bond, and you’ll most likely pay $1,250, or 0.5% of the bond’s total price.
Can a Probate Bond be refunded?
The surety bond issuer would only provide reimbursement if the probate bond were renewed and canceled before expiration. In this situation, the estate may be eligible for a prorated reimbursement of the amount paid for the said bond term.
For illustration’s sake, let’s say you paid $500 for a court bond that required annual renewal at another $500 to remain in effect.
Therefore, you might be qualified to receive a reimbursement of some or all of the $500 spent on the renewal if a bond is renewed during January and released in March. Talk to a surety firm that granted your bond if you want a prorated reimbursement.
Are there various types of probate bonds?
The goal of all kinds of probate bonds is to safeguard the estate from a designated administrator or executor. However, the titles of these bonds change depending on the set of responsibilities they’re linked to. Here are some examples of the various types of probate bonds:
- Bond for administrators
- Conservators Bond
- Court order for estate bond
- Court’s Executor Bond
- Personal representative bond
- Trustee bond
The Difference Between a Probate Bond and Other Bonds
The general name for surety bonds required for a party involved in a court-related settlement is “court bond.” However, a judicial bond, as well as a probate bond differ from each other.
A judicial bond requires pledging a specific amount of money to be paid for a court case. The only requirement for a probate bond is that the person representing him would act honestly and responsibly.
A litigation bond, commonly called a judicial bond, is used in civil lawsuits. Bail bonds, injunction bonds, and attachment bonds, among other types of bonds, may fall under this category.
Probate bonds can only be used when someone administers or manages the estate’s owed assets of another individual.
Find out if a probate bond is required if you act as an estate executor or personal representative. You must apply for a bond to a surety firm and provide the court with proof that you have one.
Who needs a probate bond?
Generally speaking, even if it is unnecessary, most executors and administrators in control of a decedent’s estate should purchase a probate court surety. Many circumstances require obtaining and placing a probate bond into effect per the deceased’s will or trust. If there are no debts and the heirs of the dead agree to forego the bond, then most courts would not order it to be acquired. Bonding is nearly always necessary throughout the probate process if an executor does not obtain the consent of all the decedent’s heirs or if they have a sizable amount of outstanding debt.
A Probate Bond: Do I Need One?
When the court assigns you as an administrator or executor of an estate, you are typically required to obtain a probate bond. The court will inform you if they decide you must purchase a bond to assume the position.
Sometimes, a judge may decide not to demand a probate bond. For instance, the Testator may have drafted a legal Will that contains a clause waiving a bond requirement. They might respond this way if they have complete faith in you and know you will behave honestly and responsibly. Alternatively, if all the heirs agree that the executor-designate is reliable, the court can rule that no bond is necessary.
Another possibility is that there won’t be a Will. The option to waive the bond requirement is available to the heirs if they are all of legal age. Even with a waiver or provision, the court has the authority to order the purchase of a bond before a personal representative can administer an estate. For instance, if an estate has a significant amount of existing debt, the court could order to post a bond to increase the reliability of the estate’s creditors.
You should contact The Law Office of Roger A. Giuliani if you are still determining whether you require a probate bond. We will pay attention to your case and assist you in deciding whether a bond is required.
If you have any questions regarding our other services, please call us at (702) 388-9800.