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Fiduciary Bonds: What You Need to Know

What exactly is a fiduciary bond? When should fiduciary bonds be used? Learn more about fiduciary bonds and their requirements here.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

Have you recently been given power over another person’s finances or business interests? This means that you’re a fiduciary, which means that you’re bound by a legal relationship of trust. In more common words, you may have been named the Executor of an estate for a loved one who passed away, or a Guardian of a child whose parent can no longer take care of them. As a fiduciary, you may be required to obtain a fiduciary bond. Keep reading to find out what a fiduciary bond is, when they’re used, and other requirements you should know about.

What is a Fiduciary Bond?

A fiduciary bond, also commonly referred to as a probate bond or estate bond, is a type of legal tool that protects beneficiaries, heirs, and creditors in the case that a fiduciary doesn’t act with integrity or fails to carry out their duties. Probate Courts often require any person fulfilling a fiduciary role on behalf of another person or party to post a fiduciary bond. If a fiduciary fails to fulfill their duties, they become financially liable for any claims filed against the bond.

In general, a fiduciary is a person who has a duty to act loyally and in good faith to protect the interest of another person. The fiduciary is typically nominated by a person who is preparing for their future death or incapacitation. 

Earlier, we briefly described examples of a fiduciary role. For instance, a Testator writing their Will nominates an Executor. The Executor is the fiduciary, as they are entrusted with administering the estate and distributing property to beneficiaries upon the Testator’s passing. In this case, the Executor is expected to act in good faith and protect the interest of the beneficiaries instead of their own. In another example, the Testator could also set up a Guardianship in case they pass away before their dependent children reach adulthood. In the event of their passing, their named Guardian is expected to step up to the plate and parent the child (or children), which typically also includes managing their assets.

Both of these are examples of fiduciary roles that come with a lot of responsibility, but also power. There are unfortunately opportunities for manipulation and estate theft. Here, the fiduciary bond protects against possible instances of fraud, embezzlement, or other dishonest acts committed by the fiduciary. The following section explains more on how a fiduciary bond works.

How Does a Fiduciary Bond Work?

A fiduciary bond involves three parties: the fiduciary, the court and the surety (the bond company). When the Court imposes a fiduciary bond requirement, then the fiduciary must purchase and post a fiduciary bond. 

Once the bond is posted, the bond company is obligated to pay the court a set amount if the fiduciary breaches their role in any way. Examples of breaches include embezzlement, fraud, or theft from the estate’s funds. 

By having a fiduciary bond in place, the amount of damage done to the estate is limited because the surety will cover the funds that were taken. Note that the bond doesn’t just cover intentional acts; it can also cover acts that were caused carelessly or with negligence. 

The bond is typically set at the number of assets (any assets that are not real property) that are under the fiduciary’s control. 

What Does a Fiduciary Bond Guarantee?

A fiduciary bond guarantees that a fiduciary appointed by a court (such as an Executor, Trustee, or Guardian) will fulfill their legal duties and comply with fiduciary regulations. They also guarantee that the fiduciary will carry out their duties in good faith, honestly, and with integrity. They are also promising not to take advantage of their appointment. In other words, the bond is protecting the estate and beneficiaries from dishonest acts such as theft, fraud, embezzlement and misrepresentation.

How Do I Know If a Fiduciary Bond is Needed? 

Regulations pertaining to the requirement of fiduciary bonds vary from state to state. It is common for states to require bonds in any type of probate proceeding where a fiduciary role is appointed. Examples of fiduciary roles include Executor, Administrator, Trustee, and Guardian. 

A bond is usually required when an individual dies intestate (dies without a Will), or did not include a waiver of the bond requirement in their Will. In other states, the Probate Court may have discretion to decide whether a bond should be imposed.

There are also cases in which other parties may request a fiduciary bond. For instance, a beneficiary or creditor might require the Court to impose a bond if they question the fiduciary’s honesty or loyalty. Rather than contesting the decision to appoint a certain fiduciary, they may request the bond to make sure that the fiduciary carries out their duties in good faith. This provides financial protection and assurance to the creditors and/or beneficiaries.

How Much Do Fiduciary Bonds Cost?

The cost of a probate bond depends on the size of the estate, and the amount of coverage that is being required. In most cases, the Probate Court will require that the fiduciary bond covers any non-real property assets that will be under control of the fiduciary. The average fiduciary bond premium is a few percentage points of the amount being covered. 

For instance, if the premium is 1 percent of the total bond amount, then the fiduciary bond premium to cover $30,000 would be $300. However, this is just an example. Find the most accurate estimate by finding out the rates offered by trusted bond companies in your state.

Once the fiduciary personally purchases the bond, then the Court will grant the fiduciary with access to the funds of the estate or Trust to carry out their duties.

A fiduciary bond is a widely-used instrument that can help protect estates, Trusts, and beneficiaries. When someone goes through the trouble of creating their estate, they can only hope that their wishes are carried out in full. Luckily, legal tools like the fiduciary bond can help keep all parties honest, even if the most trustworthy fiduciaries are in place. Strong financial incentive structures help protect fiduciaries from falling to temptation or even the slightest of misrepresentations. The promise of severe financial repercussions can help protect your estate (and your beneficiaries) from falling victim to theft, fraud, and embezzlement.

If you ultimately decide that a fiduciary bond is not the right fit for your estate, you also have the option of waiving the requirement in your Will. However, before you do so, be sure to evaluate the long-term risks and costs of such an action.

Creating your Estate Plan presents many important crossroads such as this one. To include a fiduciary bond requirement or to waive it? To set up a Trust or not? The importance of these questions can feel overwhelming, and you shouldn’t have to make these decisions on your own. Trust & Will is here to help! Our team of experts are here to answer any questions you might have. Find out what it’s like to set up your Estate Plan with Trust & Will today!

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