What is an Estate Bond?

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 What Is An Estate Bond?

Estate bonds can also be referred to as probate bonds. This bond guarantees the obligations of the administrators, executors, guardians, trustees, and other fiduciaries. Estate bonds are filed in a probate court. The executor must legally file a surety bond with a probate court or judge.

A probate bond is considered a type of surety bond that checks the executor’s actions and behavior. It is there to ensure the executor is following through with their actions regarding their responsibilities. The main purpose of a probate bond is to guarantee that the executor acts within the law in administering a will or trust. If an executor cannot complete their duties as mandated by the law or abuses their fiduciary power, the probate bond can protect the deceased person’s heirs.

Moreover, the heirs can file a claim against the bond, and if that claim is validated, they can be reimbursed for damages. This means a probate bond is an insurance policy for individuals who benefit from a deceased person’s estate.
In effect, the executor is signing a personal guarantee with the bond company, agreeing that they will carry out the required duties to process and pay all bills, including taxes, of the estate and properly divide any remaining assets to the estate’s heirs.

If they cannot complete their duties, the probate bond is applied to pay for misappropriated funds. Then, the bond company must pay within the bond’s provisions. The bond company can sue the administrator for damages and reimbursement of all misappropriated funds.

What Is the Amount and Duration of a Probate Bond?

Generally, the probate court will require the probate bond to be issued at double the estate assets listed to protect the estate. The actual value of an estate can vary and be indeterminate. The real estate estimates are not always similar to the actual sale price. A probate bond is a one-year contract mandated to be renewed until the estate is closed. Before any assets can be distributed to the heirs, the probate bonds are paid out because they are considered an important expense related to the estate.

How Does an Estate Bond Operate?

An estate bond is similar to an insurance policy. There is a process that comes with purchasing an estate bond, and it is mandatory in some circumstances. A personal representative of an estate is required to purchase a probate bond before being appointed by the court as the executor. Usually, personal funds are utilized to purchase the bond. They can be reimbursed since it is considered a legitimate estate expense. There are ways to get reimbursed as soon as the estate opens.

At this stage, individuals are allowed to make claims against this bond. For example, if the heir feels suspicious that the executor misappropriates estate funds, they can file a claim with the surety company. Then, the company will initiate an investigation to determine whether the claim is valid or invalid. Once the investigation is completed, a process will be made to resolve the claim.

The surety company will oversee the case and reimburse if they do not resolve the claim independently. However, the bond is not formed to shield individuals who purchased it. The primary goal of the bond is to protect the estate, its heirs, and creditors. Therefore, it achieves this goal through the different stages of the bond transaction.

How Much Does a Probate Bond Cost?

There are price variations when it comes to probate bonds. The costs are usually 0.5 percent of the total bond amount. Also, the size of the estate matters with the combination of other factors. You can research these factors through LegalMatch.com. A personal representative does not have to pay for the full bond amount. They are mandated to pay a small percentage.

What Are There Different Types of Probate Bonds?

Different types of probate bonds operate similarly to protect the estate from the selected executor or administrator. The names of the bonds depend on the functions of them. Different obligations are associated with each bond. Below are some of those various bonds according to Trust and Will:

  • Administrator bond;
  • Conservatorship bond;
  • Estate of court bond;
  • Executor of court bond;
  • Personal representative bond and;
  • Trustee bond.

What Does the Executor of an Estate Do?

The executor of the estate has certain duties. The main responsibility of an executor is to finalize a person’s estate once that person passes away. The following is a brief description of the basic duties of the executor:

  • Forming an inventory of the deceased person’s assets;
  • Determining the value of those assets;
  • Informing the creditors of the person’s death;
  • Figuring out a way for any creditor claims using estate assets and;
  • Distributing any remaining assets among the deceased person’s heirs.

Dividing assets becomes easier when there is already a will in place. A will is considered a legal document that provides a framework to specify who should inherit your assets from your estate. Others use the will to appoint a legal guardian for minor children. An executor is also known as a fiduciary, which means they must act in the best interests of the people they represent. This means that they should fulfill the last wishes of the person based on the provisions of the will or trust.

What Are the Pros and Cons of Probate Bonds?

Probate bonds protect heirs if an executor fails to do their fiduciary duty. If you experience financial losses because of the executor’s actions, a probate bond can help you get reimbursed. The bond essentially serves as a reminder to the administrator regarding their duties and responsibilities for the estate.

It protects the estate’s rights and ensures that the executor acts in good faith regarding their obligations to the estate. Furthermore, there is no risk of paying out damages to beneficiaries.

One of the disadvantages of having a probate bond is that not all states mandate executors to have them administer an estate. Therefore, no additional layer of protection is provided for the heirs due to this. There could be potential issues and risks if you reside in a state where probate bonds are not required. But, you can sue an executor for breach of fiduciary duty or have them removed from their role.

When Do I Need to Contact a Lawyer?

Estate bonds serve as a check on the executor or administrator’s actions. They create an additional shield for heirs in an estate plan. Obtaining an estate bond can become a complicated process. Knowing a bit about estate bonds is necessary regardless of your path for your future estate planning.

If you are struggling to obtain one or have any questions regarding it, you can seek out a local estate lawyer to assist you with your estate planning and understand the legal implications for your case.

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