What is a probate bond? Who needs one?
Sam’s mother recently passed, and Sam now must take the necessary steps to finalize his mother’s estate. Sam’s mother did have a will, but she did not name an executor to administrate the will. Sam is very surprised to learn from his attorney that probate court requires that Sam obtain a probate bond PRIOR TO the court appointing Sam as administrator of the estate.
What is an estate executor, executrix, administrator?
A person named in a will to act in the proper settlement of the estate is an executor (if male), or executrix (if female). If no person is named in the will to serve as executor or executrix, probate court will appoint an administrator to handle the distribution of the estate. Each of these (executor, executrix, administrator) has a fiduciary duty, or duty of trust, to properly settle and close the estate. (For executor responsibilities, see executor.org)
What is the purpose of a probate bond? Why do I need a probate bond? Who benefits from the probate bond?
Settling an estate can be more complicated than you realize. Sam is definitely finding this to be the case, even though his mother had a will.
Why is Sam required to obtain a probate bond? The bond is a financial guarantee by the bond company in the amount of the bond ensuring Sam’s performance as administrator of his mother’s estate. The bond protects the beneficiaries of the estate from acts such as misrepresentation, fraud, and theft of assets by the executor/executrix/administrator.
If there is a failure on the part of the executor/executrix/administrator, probate court may request reimbursement from the bond company to replenish misappropriated assets. Any number of factors may be involved in probate court’s decision to require a bond. One very common factor is if the executor/executrix/administrator lives in a different state than the estate itself is located.
In such a case, even if a will states the executor/executrix/administrator can serve without a bond, most courts will require a probate bond anyway. The concern is due to different procedures and rules in different states, as well as the actual distance of the executor from the estate.
What does it mean for an executor/executrix/administrator having a bond in his/her name?
In effect, the executor/executrix/administrator is signing a personal guarantee with the bond company agreeing that he/she will perform the required duties to process and pay all bills, including taxes, of the estate and properly distribute any remaining assets to the heirs of the estate.
If he/she defaults on any duties, and the probate bond is invoked for payment of misappropriated funds, the bond company is obligated to pay within the terms of the bond. The bond company then has recourse against the executor/executrix/administrator and can sue him/her for damages and reimbursement of all misappropriated monies.
What probate bond amount is usually required? How long is a probate bond needed?
Probate court will usually require the probate bond to be issued at double the estate assets listed, as a protection to the estate. Bear in mind there can be unknowns in the actual value of an estate, such as real estate estimates not always being similar to the actual sale price, or the possibility of finding hidden assets in the future.
A probate bond is a one-year contract that is required to renew until the estate is closed. Costs of a probate bond are considered a legitimate expense of the estate and are paid out as an expense prior to any disbursement to heirs.
Our next article will discuss costs of a probate bond, and what can be done to mitigate the costs.