The Ultimate guide to obtaining a Probate Bond

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The loss of a loved one is painful. Settling a deceased loved one’s estate adds to this difficulty. This article attempts to demystify and answer the questions: What is probate? What is a probate bond? What is the cost of a probate bond? What is the process to obtain a probate bond? What are the common types of probate bonds? And more.

This article will primarily discuss probate bonds that involve a death. However, be aware that some probate bonds (such as guardianship bonds) don’t include death.

What is probate?

Probate is the legal process of faithfully distributing a decedent's assets. The probate process typically involves the following items:

  • Filing the will and opening an estate in probate court.
  • Giving notice to heirs, creditors, and beneficiaries.
  • Adjudicate the validity of the will.
  • Determine the value of the decedent’s estate.
  • Pay debts such as creditors and taxes.
  • Locating heirs and paying inheritances.

What is a Probate Bond?

A probate bond is a type of surety bond that is a financial guarantee by a professional surety bond company. The probate bond is often required of a court-appointed fiduciary to ensure that the fiduciary will faithfully distribute the assets of a deceased person per state law and terms of the trust/will. A probate bond is typically purchased by the fiduciary (executor/administrator). In situations of wrongdoing by the fiduciary, the probate bond will indemnity those affected.

In most states—especially states that have adopted the Uniform Probate Code—fiduciaries are required to furnish this bond before distributing a person’s assets.

How Much Does a Probate Bond Cost?

The probate bond cost to the customer (aka premium) will depend on many factors. Typically, the premium will is roughly 0.5% of the bond amount. For example, a $200,000 probate bond will usually have an annual premium of $1,000.

However, as the bond amount gets larger than $250,000, many surety bond companies have a sliding scale, and the cost would be cheaper than 0.5%.

What is the process to obtain a Probate Bond?

The first step to obtaining a probate bond is to locate a reputable surety bond company. Usually, the surety bond company will have you complete an application. The application will be forwarded to an underwriter for evaluation.

The underwriter may ask for the following documents:

  • Any court documents that reference the bond.
  • A written explanation as to why you are appointed or chosen as the fiduciary.
  • Clarification of whether the fiduciary’s appointment is temporary or special.
  • A list of the heirs or beneficiaries of the decedent’s assets.
  • Copy of the will/trust.

During the underwriting process, the underwriter will need to determine if the applicant is competent and has the character to be bonded. Normally, the majority of the underwriting decision is determined by a review of the applicant’s credit report (FICO score). Additionally, the underwriter may be interested in the financial savvy of the applicant. In other words, does the applicant have the financial competence to handle the estate?

If the applicant is approved for the surety bond, the underwriter will execute (finalize) the bond. A hard copy of the bond is mailed to the applicant (or applicant’s attorney), and the bond is eventually filed with the court.

What if I can’t qualify to get a Probate bond?

Those who apply for a probate bond must have strong credit, solid financials and the experience/character to handle the assets of the deceased. Many surety bond companies have programs to help applicants that can’t qualify on their own. We have listed some of those programs below:

  1. Attorney Joint Control: The surety bond company could mandate that brokerage accounts require two signatures (the fiduciary and an attorney) to distribute funds.
  2. Restricted Brokerage account: Fiduciary must agree to place assets in a restricted brokerage account.
  3. Additional Indemnitor: An additional individual, with strong credentials, would agree to be a “Co-Indemnitor.” As such, two signatures would be required for most transactions and decisions.
  4. Indemnity by the Heir: The heirs may be willing to indemnify the applicant. This reduces the risk to the surety bond company and may allow the applicant to qualify.

What are some common types of Probate Bonds?

Below are the three most common types of Probate Bonds and their respective subtypes:

  1. Trustee Bond: bonds that are required for trust estates.
    • Testamentary Trustee Bond – bond required of a person named in the will who is tasked to carry out trust provisions in a will or a person authorized to hold an asset for another.
    • Trustee Under a Deed Bond – bond that should be obtained by an intermediary who will take possession of the property’s title until the loan is fully paid.
  2. Administrator or Executor Bond: bonds required for the administration of a decedent’s estate.
    • Administrator Bond –administrator of a decedent who died without a will or an intestate decedent.
    • Executor Bond – executor of a decedent who died with a will.
    • Administrator Pendente Lite – if the will or administrator is contested, or if there is a delay in the appointment of an administrator.
    • Administrator De Bonis Non – required of a newly appointed administrator of the remaining assets or properties that have not been fully distributed by the previous administrator.
    • Administrator Cum Testamento Annexo – required of an administrator who is appointed by the probate court because the decedent failed to name one in the will or the administrator named in the will is incompetent.
  3. Guardianship Bond: bonds required for the administration or management of an incompetent person’s assets.
    • Guardianship Bond – required of a fiduciary who manages the wellbeing & property of a minor or an incompetent person.
    • Conservator Bond – required of a fiduciary to manage somebody’s finances when they become incompetent.
    • Committee Bond – required of a group that manages the property and rights of a minor or an impaired person.
    • Curator Bond – required of a person who will temporarily administer an estate.
    • Custodian Bond – a bond required of fiduciary who is a custodian.
    • Guardian Ad Litem Bond – a person appointed by the court to take care of someone who is incapable of doing so during a case.

Understanding Important Words Commonly Used in the Probate System

It may be helpful to understand some of the terminologies utilized in the probate system.

Fiduciary – a person appointed by the probate court to administer the assets, properties, or personal belongings of another person. A fiduciary can be an individual, a trust company, or a bank. A trustee, personal representative, administrator, and executor are all known as fiduciaries.

Administrator – a fiduciary appointed by a probate court.

Executor – a fiduciary specifically appointed by a deceased person (testator or testatrix).

Probate – a legal process wherein a deceased person’s assets are determined and transferred to the beneficiaries or heirs. The debts of the decedent will also be determined during the process and how they will be paid off.

Probate Court – a court that specifically handles wills, estates, guardianships, and debts of a deceased or incompetent person.

Beneficiary – a person who is legally qualified to benefit from a will.

Testator – a male who created a will.

Testatrix – a female who created a will.

Will – a written document that states the person’s wishes on how his or her properties or assets will be administered after his or her death.

Probate Bond “Principal”– the “principal” is the purchaser of the probate bond and is typically the fiduciary (administrator/ executor).

Probate Bond “Obligee”– the “obligee” is the entity to whom the principal and the surety will be indebted. The obligee is the entity protected by the bond.

Surety – the surety bond company who will issue the probate bond and will be responsible for the default of the Principal.

Why is a Probate Bond Required?

A probate bond is required to make sure that the fiduciary appointed by a probate court will faithfully perform the obligations required of him or her by law. It is set in place to protect against fraudulent acts or mismanagement of a person’s assets.

Some of the legal obligations of a fiduciary are as follows:

  • Distribute the estate of a decedent in accordance with the terms of any probated will and the Uniform Probate Code.
  • Distribute the intestate’s assets to the rightful heirs
  • Provide notice to the heirs and devisees of his or her appointment
  • Prepare an inventory of property owned by the decedent at the time of his or her death

It’s important to note that a probate bond is not mandatory in all probate cases. Often this requirement can be waived at the court's discretion.

It’s not uncommon for a probate judge to require the fiduciary to post a bond even if explicitly stated in the will that a bond is not necessary.

How do Probate Bonds work?

A probate bond works like any other surety bond which means that there will be three parties that will enter into a legally binding agreement:

  1. Principal
    — the party who must faithfully perform a duty (the fiduciary).
  2. Obligee
    — the party that is protected by the bond (the court/beneficiaries/creditors).
  3. Surety Bond Company
    — the party that guarantees faithful performance by the principal (the surety/insurance company).

 

The primary purpose of a probate bond is to ensure that the principal faithfully executes all duties in accordance with the applicable law.

Under the terms of the bond, the surety shares the liability of the losses caused by the official acts or omissions of the principal. The principal is obligated to pay a claim made against the bond if it has been deemed valid. If the principal refuses to do so, the surety will step in and settle the claim. However, the principal will be legally obligated to reimburse the surety.

Probate bonds usually can’t be canceled. A probate bond will usually remain active until all assets have been distributed or until the final accounting for the assets has been filed.

Conclusion

If you are in need of a probate bond, please contact us. Our professional staff can answer all your questions regarding probate bonds.

Learn more about Probate Bonds by watching the video below.

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The Ultimate guide to obtaining a Probate Bond Infographic
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