What is a Probate Bond?
Probate bonds are a subset of the broader court bond category that must be filed with the probate court responsible for settling estates in the jurisdiction where the estate assets or beneficiary of those assets resides. Probate bonds, also referred to as “fiduciary bonds”, are required by the probate court as a condition of appointment for the fiduciary responsible for managing the estate. A fiduciary is defined as a person to whom property or power is entrusted for the benefit of another. Probate bonds can be classified in the following categories based on the role of the fiduciary:
Administrator Bonds - Fiduciary appointed by a probate court to handle the affairs of a person who has passed away.
Executor Bonds - Fiduciary designated by an individual through a will to handle his or her affairs after death.
Guardianship Bonds - Fiduciary appointed by a probate court to administer the estate of a ward. A ward is defined as a minor OR a person who has been declared legally incompetent. Guardians may also have authority to make health related decisions for the ward.
Conservatorship Bonds - Fiduciary appointed by a probate court to administer the estate of a ward. Conservators’ responsibilities are generally limited to the financial affairs of the estate.
Probate bonds must be issued by insurance carriers admitted in the state where the court requiring the bond resides. The insurance carrier issuing any surety bond, such as a probate bond, will also be referred to as the “surety company” or the “bond company”.
Why is a Probate Bond Required?
Probate bonds protect the probate court by transferring to a surety bond company the cost of ensuring the beneficiary of an estate is compensated for damages resulting from the fiduciary failing to perform the duties of his/her appointment. The surety company provides the probate court a guarantee (the surety bond) that the beneficiary of an estate will receive payment for financial damages due to a violation of the statutes and regulations pertaining to fiduciary duties up to a limit specified in the bond (“penal sum” or “bond amount”). Ultimately, fiduciaries are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond. Probate bonds refer to the court appointed fiduciary as the Principal, the surety bond company as the Obligor and the court requiring the bond as the Obligee.
Probate bond violations triggering a bond payout may include a fiduciary misappropriating estate assets, failing to keep accurate accounting records, or acting in a manner that disregards the best interests of the beneficiary.
How much does a Probate Bond Cost?
Probate bond rates vary from state to state, but typically cost .75% of the bond amount with a $100 minimum premium.
Is a credit check required for probate bonds?
Credit checks are typically required for probate bonds for larger estates or guardianship bonds that will need to be in force for long periods of time.
Estates with the following circumstances may find it difficult to secure a surety bond:
Bond is required on demand of an interested party (not including the probate court), i.e. a creditor of the estate.
Heirs are disputing the distribution of the estate
Prior fiduciary is being replaced
Fiduciary is indebted to the estate.
Estate assets contain a going business.
What is the Uniform Probate Code?
Due to the wide variation of probate law among the states and escalating cost and time needed to distribute assets, the National Conference of Commissioners on Uniform State Laws (NCCUSL) created a means to streamline administrative requirements. The Uniform Probate Code (“UPC”) is a body of legislation that reduces the costs of estate administration, in part by eliminating the surety bond requirement for most states. To date, roughly a third of the states have adopted the UPC filing.
Source: Suretypedia 2022
