Estate administration can be stressful enough without worrying about personal liability as an executor. You don’t have to face it alone.
Enter the probate bond…
A probate bond is one of the best investments an estate executor can make to protect themselves and the estate. But what exactly is a probate bond and how do they work?
This guide will teach you exactly how probate bonds function, when they’re required, and why you should get one when serving as an executor.
Grab a cup of coffee and let’s jump in…
Contents
- What Is a Probate Bond and Why You Need One?
- How Probate Bonds Protect You From Personal Liability
- The True Cost of Probate Bond Services
- When Courts Require Probate Bonds
- Common Executor Mistakes That Bonds Protect Against
- Wrapping It All Up
What Is a Probate Bond and Why You Need One?
A probate bond is like an insurance policy for the estate and its beneficiaries. It protects them from mistakes the executor may make during estate administration.
But most people misunderstand how probate bonds work and the consequences of not having one.
The bond doesn’t protect YOU.
The bond protects the beneficiaries, the estate, and creditors FROM you.
If you make a mistake as an executor and someone needs to be compensated for that mistake, the probate bond will help with that. The probate bond protects the people involved FROM you.
If you mismanage estate funds, distribute assets early, or make a costly error, your beneficiaries can file a claim against the probate bond to be made whole. The probate bond company will then come after you personally to recoup what they paid out on the claim.
It’s kind of like this…
You’re serving as an executor for a $500,000 estate. In your haste to get things done, you distribute all the assets before paying the estate’s creditors.
Boom! You’ve just created $100,000 of personal liability for yourself because you made a mistake as an executor. If you had a probate bond, the bond company would handle the claim for you and give you legal protection.
It’s genius when you think about it.
Probate courts handle more than 60 billion dollars of estate assets every year across the US, and they know what it takes to get those assets wrong. If you give them the protection they want in the form of a probate bond, they’ll go out of their way to protect you too.
And when you find the right probate bond provider, you’re not just getting coverage from a company, you’re getting help from people who understand estate law.
Peace of Mind
Let’s talk about peace of mind.
When you serve as an executor, there’s a lot of pressure. You need to keep everyone informed and make sure everyone gets what’s coming to them, all while running a kind of business with lots of paperwork and deadlines.
If you’re worried about making a mistake as an executor that will bankrupt you, you can’t do your job.
Probate bonds give you the protection you need so you can focus on what matters without worrying about your own personal financial liability.
The True Cost of Probate Bond Services
No one ever asks the cost question until they find out what it really is.
No one ever looks into probate bonds until they need one, and once they do they assume that it’s going to be thousands of dollars, or maybe tens of thousands of dollars, and they can’t figure out why anyone in their right mind would ever get one.
So let’s clear up some of the misconceptions right now about probate bond cost…
Probate bonds are one of the easiest and most affordable forms of financial protection available. Premiums typically run between 0.5 and 2 percent of the bond amount annually.
Let’s do the math…
If the court orders a $200,000 probate bond for an estate, that means the executor will pay around $1,000 to $4,000 per year to maintain the probate bond. A $100,000 estate will cost roughly $500 to $2,000 annually.
Oh, and here’s the kicker…
The estate pays for the probate bond, not you. The cost of the probate bond comes out of the estate’s assets. This makes probate bonds essentially free protection for the executor.
What Affects Your Rate
A few factors impact how much you’ll pay for a probate bond:
- Total estate value
- The executor’s credit score
- State minimum requirements
Credit makes a big difference in your annual premiums, and shopping between multiple bond providers can also save you money since rates vary widely.
When Courts Require Probate Bonds
Probate bonds are only required for some estates…
If you’re going to serve as an executor for an estate, it’s a good idea to find out in advance whether the probate court will require a probate bond. This can save you from unpleasant surprises later on in the probate process.
Automatic Requirements
Probate bonds are mandatory when:
- The will doesn’t waive the bond requirement.
- Beneficiaries request bond protection.
- The executor is not a resident of the state.
- Family conflict is likely.
- Estate has a lot of debt or complex assets.
Bond Waivers
The good news is that probate bonds can sometimes be waived if:
- The will waives the requirement – Lots of people add this provision just to save their estate money.
- All beneficiaries agree to waive it – If they all trust the executor, they can sign off on no probate bond.
- The court determines a bond is unnecessary – Judges sometimes waive bond requirements for very small estates.
State-by-State Requirements
Here’s a very important thing to keep in mind…
Probate bond requirements vary by state.
Just because the court will require a probate bond in California doesn’t mean that the court will require one in Texas or New York.
Probate bond laws differ in almost every state, so be sure to check your state’s specific probate bond requirements before agreeing to serve as executor. If your state rarely requires probate bonds, you have nothing to worry about!
Common Executor Mistakes That Bonds Protect Against
So, what are estate attorneys most afraid of?
Executor mistakes.
After 20 plus years in estate law, it’s clear that more people make mistakes as executors than you’d expect.
On average, an estate takes 15.5 months to settle, which gives executors lots of opportunities to screw up and create personal liability.
Distribution Errors
Distribution of assets early in the probate process is a big no-no. Too many executors distribute assets before all debts and taxes are paid just to get the estate “out of the way.”
But when unpaid creditors come forward later, it’s too late. Without a probate bond, the executor must pay those debts from personal funds.
Missing Deadlines
Probate courts have lots of deadlines. Executors need to pay attention. Failing to meet deadlines for filing tax returns, creditor notices, or distributions can result in penalties the executor must pay.
Poor Communication
Failing to keep beneficiaries informed can cause a whole host of problems. When people don’t know what’s happening with “their” inheritance, they get suspicious and make claims against the estate.
Asset Mismanagement
Executors have a duty to preserve estate assets. Poor investment decisions or negligent care of property can lead to financial losses for which the executor is liable.
Wrapping It All Up
Probate bonds are a highly effective form of protection that most people never think to get. They protect executors from the costly mistakes they are likely to make while serving in their role.
Probate bonds offer financial protection from personal liability for an extremely low cost, typically paid for by the estate itself.
The truth is that serving as an executor is no easy task, and with 2.6 million probate cases filed every year in the United States, there are a lot of executors making these mistakes every year.
Don’t be one of them.
