Fiduciary Bond

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What is a Fiduciary Bond?

Fiduciary bonds are legal instruments that protect those whose assets are being managed by another party. This other party, known as a fiduciary, is often a guardian, the executor of a will, or a financial professional.

As part of their fiduciary duty, they are required to safeguard the interests of the beneficiary or beneficiaries. These beneficiaries may be children, heirs to an estate, creditors, or those deemed unable to make their own financial decisions.

There is always a risk that the fiduciary will act improperly, potentially even engaging in fraud or embezzlement. Fiduciary bonds help to prevent these situations from arising and to protect the beneficiaries if they do.

How Do Fiduciary Bonds Work?

Fiduciary bonds protect beneficiaries by requiring the surety to pay out an agreed amount of money if the fiduciary fails to discharge their duty correctly. This failure may be intentional, for example by embezzling funds, or may be due to negligence.

To make things clearer, we’ll take a look at a situation where one of our surety bonds helped a family through a difficult situation. A man approached us, having been appointed as the executor of his late father’s will.

Emotions had been running high within his family and not all of his siblings were happy about his appointment. This certainly isn’t an uncommon situation, but the size and complexity of his father’s estate had further added to the tensions.

After the local Probate Court required him to file a surety bond for the full value of the estate, he decided to contact us to arrange it.

 Knowing that this was in place reassured his family while he settled the estate’s financial obligations and made the appropriate distributions. 

In this case, he carried out all of his fiduciary responsibilities correctly but, if this hadn’t been the case, the other heirs would have been covered. All they would have needed to do is make a claim and the bond would have covered any losses to the estate, protecting their financial interests.

We would have then pursued reimbursement for this amount directly from the fiduciary, while the other heirs would have been free to move forward with the money and assets they were entitled to.

Had the fiduciary not taken out a bond, one of the other heirs may have petitioned the court to order one. Things probably would have progressed the same way from there but, by being proactive, the executor was able to streamline the process and avoid more friction with his family.

Types of Fiduciary Bonds

Although all fiduciary bonds work according to the same broad principles, there are several different types of bonds. The bond’s type is determined by the nature of the fiduciary relationship. The most common types of fiduciary bond are as follows:

Probate Bonds

The term probate bond refers to any surety bond that has been ordered by a probate court. This can include executor bonds and administrator bonds, among others. They protect those with a rightful claim to a deceased person’s estate, including both heirs and creditors.

Executor Bonds

An executor is a person who represents a deceased person’s estate and is appointed in their will. They are required to address any outstanding financial matters and to act in the best interests of all heirs and other beneficiaries.

Some states require an executor to obtain an executor bond before carrying out their duties. It is also possible for a will to stipulate that an executor bond is required, or to waive the requirement in some cases.

Administrator Bonds

Administrator bonds fulfill largely the same function as executor bonds. The primary difference is that whilst an executor is named in the decedent’s will, an administrator is appointed by the court. It is their role to settle any liabilities and distribute the estate’s assets according to the law.

The court will often require the administrator to obtain an administrator bond, but this is not always the case.

Personal Representative Bonds

The term personal representative bond simply refers to either an administrator bond or an executor bond. This is because both executors and administrators carry out the same fiduciary duties, with the significant difference being how they are appointed.

Trustee Bonds

Trusts share some similarities to wills, but allow property and other assets to be transferred during the estate owner’s life. A trustee then takes on the fiduciary responsibility of managing these assets and distributing the income to the chosen beneficiaries.

A trustee bond can be used to protect the interests of the beneficiaries, protecting them from incompetence, fraud, or other failures on the part of the trustee. 

Guardianship Bonds

A guardian is someone who is appointed by a court to make decisions for someone unable to make them for themselves, like a minor or an adult with disabilities. The guardian is required to care for the physical and financial well-being of the person in question.

The judge will inform the guardian whether a bond is required during the guardianship hearing. They will also set the amount of the bond and the required term length, both of which can vary significantly. 

Conservatorship Bonds

Conservatorship is similar to guardianship, though the fiduciary is responsible for making decisions on behalf of an adult rather than a child. The responsibility is usually more limited in scope, with control often limited to financial matters.

Courts generally require a conservatorship bond for someone to be appointed as a conservator.

Who Needs a Fiduciary Bond?

Only fiduciaries who have a specific legal obligation are strictly required to obtain a fiduciary bond. This legal obligation may arise due to state or federal law, a requirement written into a will, or a court order. Bonds required as a result of a court order are often referred to as court bonds.

Fiduciaries who are not legally required to obtain a bond may still benefit from obtaining one. Having a surety bond in place can reassure those depending on the fiduciary, making it easier for the fiduciary to carry out their duties effectively.

How Much Does a Fiduciary Bond Cost?

The cost of a fiduciary bond varies depending on the total value of the bond. The value of the bond is determined so that it covers the value of the estate or assets entrusted to the fiduciary. The fiduciary is then required to pay a certain percentage of this amount to the bond company.

This payment is known as the bond premium and is typically lower than 1% of the bond’s value. This means that, for example, the premium on a $500,000 fiduciary bond is likely to be approximately $2,065/year, while a $100,000 one can be obtained for about $540/year.

Premiums generally decrease as the value of the bonds increases, so those responsible for managing large estates may see premiums as low as 0.1% of the bond amount.

Frequently Asked Questions

No, not all fiduciaries need to post a fiduciary bond. However, state law, a court order, and conditions included in a will can all make a fiduciary bond legally required. If you’re unsure as to whether you require a fiduciary bond, we would recommend consulting an appropriate legal professional.

It is possible. However, it depends on the extent of your credit issues. You may be able to get approved if you only have moderate credit problems. Serious credit issues will make you ineligible for bonding. Securing the help of legal counsel will help guide you through the process and increase your chances of getting approved. Fill out our application online to see if you qualify.

Execute the estate in accordance with the will. If there is no will, you must cooperate with the probate law. Watch our video to get a better understanding of claims.

You must contact us immediately, as we have a team of claim specialists here to find a resolution for you. Keep in mind, it is crucial that you work with an expert in the surety industry. Learn more about how to ensure you choose the proper bond company.

Fiduciary bonds can only be canceled or revoked where the fiduciary is no longer obligated to carry out their fiduciary duties. In the case of court bonds, neither the principal nor the surety company is able to cancel the bond. The only way it can be revoked is with another court order.

You can take a look at our full list of court bonds.

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