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probate bond

Creating an estate plan means you have control over what happens to your assets when you pass away. Naming an executor is an important step, as that person will be responsible for settling your estate and distributing your assets to your heirs after you’re gone. State probate laws may require an executor to have a probate bond in place as they carry out their duties. It’s important to understand what that means if someone names you as their executor.

For help planning your own estate, consider working with a financial advisor.

What Does the Executor of an Estate Do?

Before diving into what probate bonds are, it first helps to know a little about what an executor does. An executor’s job is to finalize someone’s estate when they pass away. Generally, the duties of an executor include:

  • Creating an inventory of the deceased person’s assets
  • Establishing the value of those assets
  • Notifying creditors of the person’s death
  • Settling any creditor claims using estate assets
  • Dividing any remaining assets among the deceased person’s heirs

The job of dividing assets is easier when there’s a will in place. A will is a legal document that allows you to specify who should inherit what from your estate. You can also use a will to name a legal guardian for minor children.

An executor is a fiduciary, which means they’re obligated to act in the best interests of the people they represent. In other words, they’re expected to carry out the terms of your will or trust in accordance with your wishes and for the benefit of your heirs.

What Is a Probate Bond?

A probate bond is a type of surety bond that serves as a check on the executor’s actions and behavior. It can also be referred to as a fiduciary bond, executor bond, estate bond or personal representative bond.

Probate bonds are intended to ensure that the executor acts within the law in administering a will or trust. If an executor does not complete their duties as required by the law or abuses their fiduciary power in some way, the probate bond can protect the deceased person’s heirs.

Heirs can file a claim against the bond and if that claim is proven to be valid, they can be reimbursed for damages. In other words, a probate bond acts as an insurance policy for individuals who stand to benefit from a deceased person’s estate.

How Does a Probate Bond Work?

probate bond

The exact process for how probate bonds work varies from state to state. If a court requires an executor to obtain a probate bond, they’ll need to do so before they can begin carrying out their duties. The executor would need to purchase a probate bond from a surety bond company, which typically involves a criminal background check.

Probate bonds are issued based on the value of the estate that’s being settled. The bond amount or bond premium is usually a percentage of the estate’s value. If an estate is valued at $500,000, for example, then the executor might need a probate bond worth $50,000. The surety bond company can charge the executor a fee to issue the bond. The fee can vary by state.

Once the bond is in place, the executor can begin administering the estate. At this stage, any interested parties could make a claim against the bond if they believe the executor has breached their fiduciary duty. For example, someone might make a claim against an estate bond if they suspect the executor has:

  • Used any assets of the estate for their own benefit or advantage.
  • Unfairly favored one estate beneficiary over another.
  • Broken the law or otherwise acted negligently.
  • Acted in opposition to the terms of the will.

If beneficiaries make a claim against the bond, then the executor must forfeit the bond. Beneficiaries can then receive compensation for any losses they might have sustained as a result of the executor’s actions.

Pros and Cons of Probate Bonds

Probate bonds offer protection to heirs in case 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 to get reimbursed for those losses.

Having a probate bond in place can also serve as a reminder to the executor of what their duties and responsibilities are. It could encourage them to act in good faith and follow through on their fiduciary duties so there’s no risk of having to pay out damages to beneficiaries.

The one con of probate bonds is that not all states require executors to have them in order to administer an estate. If you live in a state where probate bonds are not required, then there’s no automatic failsafe in place. You could, however, still choose to sue an executor for breach of fiduciary duty or at the very least, have them removed from their role.

How to Purchase a Probate Bond

probate bond

If you’ve been named as the executor for someone else and the court dictates that you must purchase a probate bond, the process is fairly straightforward. You’ll first need to find a surety bond company that issues estate bonds.

Once you find a bond company, you’ll need to submit a formal application for an estate bond or probate bond. As part of the application process, the bond company will perform a background check. You’ll also need to pay the bond company’s fee.

Most probate bonds are issued for a set time period, which may be anywhere from 12 to 24 months, depending on the complexity of the estate. The bond expires at the end of the term and typically, the estate has been settled before that happens. It’s possible that the bond company may pay some of the bond premium back to you. Whether you get any money back can depend on what’s allowed by the probate court.

The Bottom Line

Whether you call them probate bonds, estate bonds, fiduciary bonds or administrator bonds, they all mean the same thing. Having a probate bond in place can offer reassurance for the beneficiaries of an estate and a form of protection against malfeasance. It can also be a motivator to carry out your duties to the fullest extent possible if you’re acting as an executor.

Estate Planning Tips

  • Consider talking to a financial advisor about the implications of being named as an executor to someone’s estate. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • It’s possible to skip the probate process if you’re creating a trust as part of your estate plan. A trust is a legal document that allows you to transfer assets in your estate to the control of a trustee. Similar to an executor, a trustee is also obligated to follow a fiduciary duty. Trusts can offer certain benefits in estate planning if you’d like to set conditions on when your heirs can inherit your assets. They may also offer some tax protections for your spouse or other beneficiaries. Your financial advisor can help you to evaluate whether a trust makes sense for you.

Photo credit: ©iStock.com/nuttapong punna, ©iStock.com/Dean Mitchell, ©iStock.com/Inside Creative House

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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