Probate Bonds and Estates: How They Work Together
Probate bonds, also known as fiduciary bonds or estate bonds, are a type of insurance that protects creditors and beneficiaries of an estate from the actions of the executor. Probate bonds ensure that the assets of an estate are distributed properly by the executor, especially without a will. There are many responsibilities of being an executor to an estate, which is why there is a risk that these responsibilities won’t be carried out adequately. The process can be more complex if the deceased has a small business as well. If you’re unsure what a probate bond is and how they work, you can learn about the basics in this article.
What is a Probate Bond?
When someone passes away, part of their death is managing their finances. Usually, a family member or close friend will ensure that all of the deceased individual’s debt is paid off and the remaining assets are distributed. The details of how finances are distributed after death are often specified in a will, but not everyone has a will. In this case, someone would be appointed, known as an executor, to handle the deceased individual’s finances.
This is where probate bonds come into play. A probate bond ensures that the creditors and beneficiaries of a deceased individual’s estate are properly distributed as agreed upon. However, with the absence of a will, there is a risk that the individual responsible for managing the estate will not carry out their duties properly. If this happens, the probate bond would pay out what is owed to creditors and beneficiaries to ensure that they are not harmed by the executor’s actions.
How Do Probate Bonds Work?
A probate bond guarantees that the individual responsible for the deceased person’s estate properly manages the affairs and follows the laws and Courts. In the event that the individual does not carry out their duties as executor of the estate, the beneficiaries of the estate or the Courts can make a claim. The person who makes a claim is known as the obligee. There is also a third party known as the surety. This is the company that compensates if the executor fails to follow through with their duties.
To summarize, there are three components to a probate bond:
- Executor: The individual appointed to manage the deceased person’s estate. Also known as an applicant, principal, trustee and administrator.
- Obligee: The estate, courts or beneficiaries which is a recipient to the executor’s obligations.
- Surety: Third-party company that makes the guarantee on behalf of the executor for the obligee.
These three components form the probate bond which protects creditors and beneficiaries from improper administration of estate assets. The bond will state that if the executor fails to perform their duties as agreed upon, then the executor will be liable for the entire bond amount.
A bond application specifies what city, province or country where the duties should be carried out. The application will be reviewed by a judge to ensure that all conditions have been satisfied as agreed upon.
When Is a Probate Bond Necessary?
Obtaining a probate bond is not always necessary. Typically, a probate bond is only required when there is no will, the executor of the will is out of province or an alternative executor is in the process of applying for appointment to the Courts.
Probate bonds are required by the Public Guardian’s office and the courts to protect creditors, beneficiaries and guardians of minors and the incapacitated of the estate. The bond acts like security to the court to ensure that the executor of the will fulfills their duties.
Who Should Be Appointed as Executor?
An executor must act diligently and honestly when carrying out their duties. Potential duties could be preparing inventory of the estate, collecting the assets of the estate, paying off outstanding debts, filing final income tax returns and distributing assets according to the law. Because these tasks are complex and involve money, the individual appointed should have high integrity and be trusted.
How to Obtain a Probate Bond
If you’ve determined that you need a probate bond, your next step is to actually obtain one. Unfortunately, the process is not always straightforward and simple.
First, find a probate bond surety insurance company. The insurance company will request the following copies of documentation in return for a probate bond:
- Completed probate bond application and Indemnity Agreement
- Court application
- Personal net worth statement
- Will, if applicable
- Renunciation and Nomination, if applicable
- Beneficiary consents, if applicable
- Death certificate, if intestate
Keep in mind that the required documentation depends on the insurance company you choose. Additional documentation may be required depending on the circumstances.
Probate Bonds and You
Becoming the executor of someone’s estate can be a stressful process. Not only are you dealing with the death of a loved one, but you’re also dealing with a complex legal proceeding. Probate bonds are meant to protect the estate of the deceased individual and ensure that their finances are rightfully distributed. While stressful, it can also be an honour to be an executor!