You’ve been told you need a fiduciary, or probate, bond. That sounds serious. Actually, a fiduciary bond doesn’t have to be complicated at all once you understand what it is, when it’s needed, how it works, and who can help.
What is a fiduciary bond?
Fiduciary is a complicated word that boils down to trust. An individual, called the principal, also called a fiduciary or trustee, is responsible for acting on behalf of another party in good faith. This person, the beneficiary, is unable to act for themselves for a variety of reasons.
A fiduciary bond is when a bond provider, or company acting as a guarantor, issues a bond for an amount of money required by the court, also known as the obligee. The bond is a promise. The company providing the bond promises if the principal doesn’t act in good faith and embezzles or otherwise inappropriately uses the beneficiary’s funds, the money will be reimbursed, up to the amount of the bond. In exchange, the fiduciary provides payment for the bond as required by the company issuing the bond.
The four parties to a bond generally are:
- The obligee (usually the court). The entity requiring the bond.
- The principal (also known as fiduciary or trustee). The person handling the funds.
- The guarantor (bond provider).
- The beneficiary (or estate). Owner of the funds.
When is a fiduciary bond needed?
There are many instances in which a fiduciary bond may be required. The most common ones deal with estates or guardianships.
These bonds are usually required to ensure an individual or individuals appointed by the court to handle an estate’s assets do so appropriately. If not, a bond is in place to provide for misappropriated assets.
For an executor bond, an executor is named in a will. However, the court has determined it’s still in the estate’s best interest to have a bond issued in case the executor does not fulfill their duties in the manner expected of them.
Conservator Bond/Guardianship Bond
These terms are often used interchangeably to mean an individual is being appointed to handle the affairs of a living person who is physically or mentally unable to do so for themselves.
Sometimes these terms are divided by whether the care is for a minor (guardianship) or an adult (conservatorship). Either way, the purpose of the bond is to provide protection in the event the responsible party doesn’t act responsibly.
What’s the process to obtain a fiduciary bond?
The process for obtaining a fiduciary bond is relatively straightforward.
- An attorney prepares documents (Letters of Petition or Administration) for the court asking that an individual be named administrator, conservator, guardian, etc. or provides a will naming the individual as executor. Most attorneys know in advance the requirements for local probate courts and can advise if a fiduciary bond will be needed.
- The individual wishing to be bonded brings a copy of the Letters of Petition to a probate bond provider. An application is completed.
- The bond is either produced in the office and payment is collected, or the application is sent out to the company’s underwriting department for approval. This typically involves a credit check and possible background check, depending on the amount of the bond.
- The bond is approved by underwriting, payment is collected, and the bond is delivered.
- The Letters of Petition and fiduciary bond are presented to the court, and the court determines if the request is granted.
If a fiduciary bond is required, it will likely be required until the estate is closed, the principle has proven to the court all assets have been disbursed, or that a conservatorship or guardianship is no longer needed. Bonds are typically annually renewable, meaning payment must be made annually to continue the bond.
Who can help?
While fiduciary bonds don’t have to be complicated, they certainly can be. That’s why having a team of dedicated professionals with over 100 years of combined experience is crucial. Starke Agency, Inc. has the knowledge, confidence, and resources to help you through the fiduciary bond process. Contact us for help with your court bond today.