In the context of estate issues, an individual who creates a will may choose to appoint an executor or an administrator. An executor or administrator is an individual who is entrusted with the management and distribution of the estate’s property upon the incapacitation or death of the estate holder.
An executor plays a critical role in the probate process. They are entrusted with various executor duties and tasks.
Examples of these executor duties and tasks may include:
- Gathering and identifying the assets of the estate.
- Compiling information about the beneficiaries and recipients of the property as named in the individual’s will.
- Arranging for the payment of any outstanding debts and taxes on the property.
- Filing various required forms.
- Numerous other duties.
What Is an Executor Bond?
When understanding an executor bond, it may be helpful to know three important definitions of terms associated with it, including:
- Will documents: A will document refers to a legal instrument that provides instructions on how its creator, called the testator, wishes to distribute their estate after they have died;
- Executor of the estate: This is the individual who is appointed to:
- Oversee the estate distribution process;
- Handle issues associated with the will document; and
- Manage all other matters related to the testator’s estate; and
- Surety bonds: A surety bond is a written contract between three parties that guarantees one of the following:
- Payment
- Performance of a specific act
- General compliance.
An estate bond, in general, is a type of surety bond that ensures that the executor of the estate will fulfill their legal obligations, for example, distributing the estate property per the relevant applicable laws. The executor will be required to purchase an estate bond from a surety bond company.
To do this, they will be required to submit an application and agree to a background check. Once approved, the surety bond company will issue the executor an estate bond.
The amount of the estate bond is based on a certain percentage of the total value of the individual’s estate. In other words, the executor will only be required to pay a small amount to purchase the bond, not the full amount of the property.
The estate bond that the executor purchases would serve a similar purpose as an insurance policy. However, it is important to note that these two things are not the same.
For example, if the executor deliberately fails to perform their legal duties or if they violate a law that is associated with their legal duties, they will be required to forfeit the estate bond and use that to compensate the beneficiaries for any losses that were incurred as a result of their actions.
Therefore, in certain ways, an estate bond may act as both an incentive to motivate an executor to properly perform their duties in addition to a form of monetary protection for the beneficiaries of the estate in the event that an executor:
- Is negligent
- Fails to deliver
- Commits some other type of estate-related violation.
However, it is important to note that not each state requires an executor to purchase an estate bond. In states that do require this purchase, an executor may also be required to sign an Indemnity Agreement.
This agreement guarantees that the executor will pay for any financial losses that they cause. In addition, some courts or will documents may demand that the executor purchase an estate bond, regardless of whether it is required by state law.
If the executor completes their legal obligations without issue, the court may cancel or discharge the executor from the estate bond. As long as the executor does everything they are required to in a legal manner, they will be able to get the money back that they paid for the estate bond.
The laws that govern estate bonds and executor duties may vary widely by state. Because of this, depending on the jurisdiction, an estate bond may also be referred to by other names, such as:
It is important to note that simply because two states use the same name to describe estate bonds, it does not mean that the bond requirements will be the same or similar. Because of this, an individual should always review their state and local laws and any estate-related documents, such as a will.
Are Executor Bonds Required by Law?
As previously noted, not all states require the executor of an estate to purchase an estate bond. The executor of an estate, however, will be required to purchase an estate bond if it is:
- Required by a local or state probate law;
- Ordered by the probate court; or
- Specifically requested in the will document.
In general, a court or will document will typically only request that an executor purchase an estate bond if a lot of money is at stake or if the estate is larger. In other words, the more the beneficiaries stand to lose, the better the chance that the executor will be required to obtain an estate bond.
This is true, especially in states with no estate bond laws to protect beneficiaries against financial losses. There are also other situations in which an executor may be asked to secure an estate bond, including when a testator dies without a valid will or intestate and if an executor is considered to be an out-of-state fiduciary.
Some exceptions, although rare, allow a property owner to include a provision stating that they do not want the executor to purchase an estate bond. This may occur when a property owner is aware that the estate bond would be costly, or it may potentially delay the process of distributing the assets of their estate.
Other situations in which posting an estate bond may not be required include if the following:
- The bond requirement is waived;
- A fiduciary party is a financial institution; or
- The probate court determines that one is not needed.
What if an Estate Bond Is Not Posted?
Depending on the case’s circumstances and the state’s laws, if an estate bond is required but is not posted, it may delay the entire probate process. The same holds true if an estate bond is posted but improperly.
A delay in the probate process may lead to legal issues, including:
- Will contests
- A statute of limitations issue
- A dispute over a late property distribution.
If an executor fails to obtain an estate bond within a reasonable amount of time or if they are not able to obtain one because of their financial circumstances, such as recently filing for bankruptcy, the court may appoint a new executor who is capable of securing and posting the requisite estate bond.
Do I Need a Lawyer for Help With an Executor Bond?
As noted above, the requirements for an executor bond may vary by state. If you have any issues, questions, or concerns related to wills, trusts, and estate law in your area, it may be helpful to consult with an estate lawyer.
If you are an executor, your lawyer can assist you with fulfilling the bond requirements in your state and ensuring that you complete your duties as executor. If you are creating a will, your lawyer can advise you regarding any executor bond provisions you wish to include.
