After a person dies, their property and valuables start being distributed between their heirs. Usually the distribution process is described in the deceased person’s will. If a will is lacking, a court proceeding decides on how the assets will be distributed, but in both cases the process is called probate and there’s a person responsible for it called the executor. In some cases the executor needs to purchase a probate bond. This article explains what probate bonds are and how they can be obtained.
Probate bonds are part of a bigger category of bonds, called court bonds, used as a financial guarantee that a legal proceeding will be executed fairly. You can see probate bonds under other names such as fiduciary bonds, estate bonds or executor bonds.
Executors of wills need probate bonds so that they will execute all parts of the will in a correct manner. That means taking care of the estate and all assets of the deceased, having them evaluated by an expert and notifying all beneficiaries and heirs. If the executor fails to do that, whether on purpose or due to negligence, the probate bond will come into effect and compensate for financial losses incurred by the executor. Probate bonds are underwritten for a certain amount by а surety bonds company, which is first responsible for paying the money in case of a claim. It will then seek to be reimbursed by the executor in question.
Not every executor will need a probate bond. Sometimes a will specifically waives that requirement. But if it doesn’t, or there’s no will and the distribution of assets is handled by the court, then the executor will most certainly be required to have a bond unless all relevant stakeholders agree that there’s no need for one.
How to get probate bonds
Probate bonds are purchased with the help of a surety bonds agency, which is the middleman between the surety bonds company and the executor.
The total amount of the probate bond is either determined by the will or by the judge handling the case. The executor doesn’t pay the full amount, but a certain percentage of it. They do so paying annual premiums for each year for which the probate is extended. Thus, it’s in the interest of the executor for the distribution of assets and property to be done as quickly as possible.
The annual premium is calculated mostly on the basis of the executor’s personal credit score, but is also determined by other details of the assets, such as ongoing debts, etc. The credit score, however, remains the most important determinant because probate bonds (and all surety bonds for that matter) work like credit given to an individual or a business. Similarly to how banks evaluate your credit score before giving you credit, surety bonds companies evaluate the likelihood of you triggering a claim. After all, they endorse you by underwriting the bond and if something goes wrong, they are financially responsible. And keep in mind that sureties always assume a 0% loss ratio.
For that reason it might be impossible for people with bad credit score to obtain a probate bond. Certain exceptions for people with credit issues apply, but in general, the market for court bonds is a stringent one. Thus, if you have bankruptcies, tax liens, late child support payments or a low credit score, you can expect a refusal.