What is a surety bond in probate court? A surety bond is a type of contract that provides financial guarantees. There are times when a surety bond might be used in the context of the probate process. Why are surety bonds used, and how does it apply to probate? Should you be concerned with obtaining a surety bond for probate and the administration of an estate? Trust & Will answers these questions and more.
What is a Surety Bond?
A surety bond, in its general sense, is a contract that is formed between three parties. The three parties are the principal, the surety, and the obligee. This bond creates a financial guarantee that the principal will fulfill their responsibilities, which are specified as terms by the bond.
The surety is a person or organization, such as a bonds company, that assumes the responsibility of paying the debt in case the principal fails to pay their debts or carry out their duties. The obligee is the entity that is requiring the bond.
Surety bonds are typically used when one party is unsure of the other party’s ability to fulfill their requirements, often financial in nature. They are also used in the probate process.
What is a Surety Bond in Probate Court?
When an individual passes away, their estate is processed through the probate process. The Court determines how the decedent’s property should be distributed, and how any debts should be settled. If a Will exists, they will utilize the instructions in the Will to guide their decision-making. Issues of guardianship and trusteeship are also addressed during probate.
As you might imagine, this process can be complex and emotionally charged. Because of this, a probate court will often require involved parties with a fiduciary role — Executors, Administrators, Trustees, Guardians — to obtain a probate surety bond. These roles come with great responsibility, and thus a great deal of pressure. Surety bonds can help create accountability and ensure that surety bond requirements are carried out in full.
What is the Purpose of a Surety Bond?
The purpose of a surety bond, in the context of probate court, is to guarantee that the principal will fulfill their duties. These duties are in the eyes of the law, the probate court, and the instructions left behind in the Will of the decedent. Because the role of a fiduciary, such as an Executor, has a great deal of power pertaining to the administration of an estate, there is, unfortunately, room for breaches in that fiduciary duty. These breaches can be unintentional or intentional, such as for the Executor’s own financial gain.
If the Probate Court or wronged party filed a claim against the Fiduciary's probate bond, they then receive financial compensation. If the surety determines that the claim is valid, then the Fiduciary (the Principal) is personally responsible for paying back the compensation.
By requiring a surety bond, the Probate Court places a strong financial incentive on the Fiduciary (the Principal) to carry out their duties in full.
What is an Example of a Surety Bond?
Surety bonds tend to fall into one of three categories: license & permit bonds, performance bonds, and court bonds. First let’s go over a couple of surety bond examples that fall into the license & permit and performance categories:
A mortgage broker bond is an example of a license and permits surety bond. These surety bonds are required in order for a mortgage broker to get their license. The bond ensures that the broker runs their brokerage with integrity and professionalism. It also protects buyers in case they are subject to any damages due to illegal activity.
A contractor bond is a type of surety bond required by any contractor before they start any type of home improvement project. It guarantees consumers that the contractor will complete their work up to code, and to their satisfaction.
The final category is court surety bonds. Within this category, one will find several surety bonds related to the probate process:
Executor Bond: Nominating an Executor is an important aspect of writing your Will. This is because you are trusting this person to carry out your wishes after you pass away. They will be granted legal authority to distribute property and pay your debts, amongst other activities. As a Testator, you have the option of adding a surety bond waiver to your Will when you’ve nominated someone that you trust completely, such as your spouse or adult child. Otherwise, the Court may choose to require that the Executor obtain a surety bond.
Administrator Bond: There are certain scenarios in which a Probate Court will appoint an Administrator to an estate. Common examples include when an individual dies without a Will (“intestate”) or the named Executor declines their role. Administrators largely carry out the same duties as an Executor, but their specific set of responsibilities varies from state to state. The court typically requires them to obtain a surety bond to ensure that they carry out all their duties with integrity.
Guardianship Bond: Some individuals use their Will to nominate a Guardian who will take care of their dependents after they pass away. This could be minor children, or children with disabilities. The Probate Court can also establish guardianship, giving that person quite a bit of power over another person and their finances, and oftentimes in a vulnerable position. Because of this guardians are typically required to obtain a surety bond for their guardianship position.
Trustee Bond: The Probate Court will require any individual appointed as a Trustee to obtain a surety bond. This is because their fiduciary duties include managing property and assets owned by a Trust and distributing them to beneficiaries. The bond protects the beneficiaries from potential loss.
When Should a Surety Bond Be Used?
A surety bond should be used in a circumstance where the stakes are high, and the outcome is directly impacted by an individual’s ability or willingness to carry out their responsibilities.
We see surety bonds being used in many industries, ranging from real estate to construction to car sales. One major application is in the court system, namely in Probate Court. This is because the Court appoints a variety of fiduciary roles that have a lot of power, and it’s imperative that they carry out their duties.
Here are some scenarios in which a surety bond should be used:
When a contract requires performance
When a contract is high in cost, or a large sum of finances is involved
When there are opportunities for the Principal to take advantage
When obligees should be protected in case the Principal fails to meet their obligations.
How to Get a Surety Bond for Probate Court
A surety bond can be required or optional, but you may choose to obtain one regardless. The first step to purchasing a surety bond is to find a reputable surety bond company. There are many surety bond companies to choose from, with some specializing in different types of surety bonds. Your local Probate Court may provide a list of preferred surety bond companies that have already been verified. You can also find online reviews that provide lists of the best surety bonds. It makes sense to conduct research on various bond companies and select one that meets your requirements, offers the best rates, and has strong reviews.
Once you’ve selected your surety bond company, you’ll complete an application that will be reviewed by an underwriter. They may ask for certain documents, such as your court documents and clarifications regarding your role as the fiduciary. They may also ask for a copy of the Will or Trust. The underwriter is doing their due diligence and ensuring that you are competent and should be bonded. They may look into your credit report and financial competence. Once approved, you will receive a hard copy of the bond which is in turn filed with the Probate Court.
Here is a quick summary of what we discussed regarding surety bonds in this guide:
If you’ve been appointed by the Probate Court to fulfill a fiduciary duty, you may or may not be required to purchase a surety bond. Surety bonds involve three parties — you (the Principal), the surety (the bond company), and the obligee (the Probate Court). A probate surety bond helps ensure that you will carry out your duties with integrity and good faith. Examples of duties include distributing the assets of the deceased or serving as a legal guardian to the decedent’s child. If anyone files a claim against you, the surety bond company compensates them for the loss or harm incurred. They will conduct an investigation, and you would be liable to reimburse them for the full amount. Thus, the surety bond creates a strong financial incentive for any fiduciary to carry out their tasks in good faith.
For most individuals, surety bonds are likely a little-known fact regarding the probate process. In the process of writing your own Will, you may realize that this is quite a financial burden to place on someone you love. Although surety bonds are a strong incentive and tool used by the court system, know that you have the option to write a waiver in your Will. This is only recommended if you absolutely trust the person you’ve nominated as your Executor, such as your spouse or first-born adult child. Otherwise, you may want to take advantage of the protections the surety bond offers.
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