All about executor bonds

Key takeaways about executor bonds

• In some states and some situations, an executor will be required to post bond.

• The will and/or the beneficiaries can waive their right to have the executor purchase a bond.

• Also called a probate bond, it guarantees that if the executor makes a mistake or commits a crime that costs the beneficiaries, the bond company will repay them.

• The bond company will then attempt to get the money from the executor, including garnishing wages or putting a lien on their house.

• If all goes well and no errors or crimes happen, the executor gets their bond money back, minus a fee.

When your loved one named an executor for their estate in their will, they placed a great deal of trust in that person. The executor is responsible for the thorough settling of their estate, faithfully paying all their debts and managing all of their assets for their beneficiaries. And although your loved one may have felt they were the best person for the job, the beneficiaries in the will may need some reassurance that the executor will do everything right and not make any careless mistakes or, worse, take something that isn’t theirs.

For this reason, many states require the executor to purchase an executor bond, and probate judges in other jurisdictions will often require the executor to purchase one as well, depending on the situation. This bond is meant to keep the executor meticulous and honest so that the family and other beneficiaries can have peace of mind while all the details of probate are worked out.

What’s an executor bond?

An executor bond, also known as a probate bond or a fiduciary bond, is a type of surety bond. This is a contract in which a person or organization known as a surety guarantees that another person will fulfill an obligation that they have to a third person.

In the case of an executor bond, the bond guarantees that the executor will administer the estate according to both the will and the law. The executor is in charge of all the assets, in some cases worth a very large amount of money, that rightfully belong to the beneficiaries listed in the will. The bond gives the executor added incentive to do the right thing. Should the executor make a mistake, either accidentally or maliciously, the bond is there to make sure they are held responsible, and that the beneficiaries are repaid for any money they lost as a result.

When is an executor bond required?

In some states, an executor bond is mandatory, as a means to protect everyone involved. In other states, an executor bond is only required if the executor lives in a different state. In still other states, the judge can order the executor to purchase a bond, which they will often do if the executor is not also a beneficiary in the will. The judge may also choose to look into how well the family gets along and whether or not they seem to trust the executor in order to determine whether to order a bond.

The will itself can also mandate that the executor purchase a bond, or it can state that it does not need the executor to buy one, even in states where a bond is generally mandatory. 

Similarly, if all of the beneficiaries officially agree that the executor does not need to be bonded, in most cases the bond requirement will be waived. Bonds can be very expensive—in the thousands of dollars if a large estate is left behind. Purchasing and securing a bond can also extend the probate process, making things last far longer than anyone wants.

Thus some families decide that it is in their best interest to place their faith in the executor and waive their right to a bond, particularly if the executor is a family member or a close family friend.

In some situations, even if the will mandates that the executor be bonded, the beneficiaries can get together and waive the bond. These rules, like many others, can vary by state, and it’s always best to talk to a lawyer so you know the requirements in the relevant area.

Buying the bond

An executor bond is purchased by the executor or administrator of the estate. The bond has to be applied for through a surety bond company, which can be done online. When purchasing a bond, the executor will need to provide personal information so they can undergo a credit check. 

What this means is that not every executor will be allowed to purchase a bond if their credit isn’t up to par. For example, if the executor recently filed for bankruptcy, they will almost certainly not be able to get a bond. If there is absolutely no way for the executor to obtain a bond, the judge will generally appoint someone else who has the necessary credit to be the executor.

In a lot of cases, however, the bond company will not reject someone with bad credit outright but will instead put extra obligations on them, such as a requirement to put up collateral, or to purchase a so-called “high risk bond,” which has a much higher initial cost and higher interest. If you are the executor and this is your situation, you might want to consider petitioning the court to be replaced as executor, to avoid any prohibitively high costs.

Executor bonds vary in cost, as they’re based on the value of the estate; in most cases they’re about 0.5% of the estate’s total value. You can get a free quote online, so you know what to expect before purchasing one. 

Who pays?

Who is ultimately responsible for the cost of the executor bond varies from state to state. In some states, the estate will cover the cost, while in others the executor will have to pay for it out of pocket and be refunded by the surety company. 

As long as the executor behaves in an ethical and conscientious manner, abiding by the laws of the state, the instructions in the will, and the orders of the court, the bond will be refunded to the executor in full at the end of probate—excluding a nonrefundable bond issue fee. 

However, if the executor doesn’t behave in an ethical and honest manner, the bond will not be refunded to them. The family will be reimbursed by the surety company, and the surety company will then sue the executor for liability so it can get paid back. Depending on the level of corrupt behavior, the beneficiaries may also choose to file a lawsuit.

An executor bond not only keeps the executor honest in this way, it also incentivizes them to move through the process as quickly as possible, as bonds charge an annual premium. Once the estate is settled, the executor receives an exoneration certificate from the courts to show that they’ve done their duty; this certificate is submitted to the surety bond company to immediately put an end to any more premiums. 

How does the claims process work?

Executor bonds hold the executor of the estate accountable should the executor not fulfill their obligations. The bond protects against errors (even if they happen to be accidental), fraud, theft, or misconduct, as well as misrepresentation on the part of the executor.

If it becomes clear that the executor is not fulfilling their obligation in a legal manner, the beneficiaries can make a claim in probate court. The court will hear the testimony of both sides, and if it is proven that the executor lost or stole money from the estate, the bond company will have to repay the beneficiaries the amount the executor cost them—up to the amount of the bond. Thus if the executor bond is for $50,000 but the executor stole twice that from the estate, the beneficiaries will only receive up to $50,000 from the surety company. 

The surety company then will turn around and pursue the executor for the money they had to pay out. Assuming the executor has the money, the company will generally get repaid, and can even help the beneficiaries recoup any funds they lost out on in excess of the bond amount. Mishandling or stealing a family’s inheritance is not treated lightly. In some states, the company is allowed to go to great lengths to retrieve the money, including garnishing the executor’s wages, freezing their bank accounts, or putting liens on their personal property.

What happens if you don’t have an executor bond?

If you don’t have an executor bond, and the executor of the will mishandles probate or, in the worst-case scenario, steals from the estate, then the family can find themselves in a bit of a difficult situation. The executor of the will was chosen by your loved one, and they have a great deal of power. If they decide to take your inheritance and spend it, a civil court may not be able to get it back if the money is already gone. 

During this difficult time, the last thing you want is this kind of added complication. An executor bond helps make sure everything goes as it should, the beneficiaries receive what is rightfully theirs, and the executor behaves in a careful and honest fashion. It holds the executor to a certain standard and, in doing so, gives the beneficiaries peace of mind ●