Trustee Surety Bond
A trust is a document similar to a will, which must be administered by a trustee, a person charged with carrying out the wishes of a deceased individual. Trusts generally include language that specifies how the deceased person would like their property and assets to be divided among beneficiaries. A trustee surety bond has three parties involved: the surety company that the bond to the principal, the principal or trustee who must be bonded so they can serve the in the role of trustee, and the obligee, which is the court that requires a trustee to be bonded.
How do trustee bonds work?
These bonds guarantee that the trustee will carry out the wishes of a deceased person as they are stated in the trust, and which are repeated in the bond itself. If the trustee fails to live up to the details of this agreement or acts fraudulently while serving as trustee, the court is free to file a claim against the trustee bond, and this claim must then be paid by the surety company.
If the trustee fails to perform their duties in accordance with the terms of the trust and the bond, the court will make a claim against the trustee bond, to ensure that benefactors receive the awards intended for them by the deceased person. Although the surety company must initially pay the full amount of any claim made against the bond, it will then attempt to recover the entire amount from the trustee, whose fraudulent or non-compliant actions led to the claim being filed.
Related types of bonds
A trustee bond is one type of bond from the general category of court bond types, all of which are required when specific individuals have been designated to act on behalf of other persons. Fiduciary and probate bonds are two other kinds of court bonds in this grouping. A fiduciary is a person who acts on behalf of someone else's assets and financial interests, and because they have this power, courts require them to purchase an executor bond, a guardianship bond an administrator bond, or a conservator bond.
All of these bonds are very similar, and when the process begins for carrying out the distribution of assets according to a deceased person's wishes, this process is known as probate. When you hear the term fiduciary and probate bonds, it will generally indicate that a fiduciary has been appointed by some level of the court system, to manage the finances of a deceased person via the probate process.
A bankruptcy trustee bond is another fairly common type of surety which falls in this category, and it is required of a bankruptcy trustee by virtually all courts in this country. Bankruptcy trustee bonds ensure that trustees in charge of presiding over an individual's bankruptcy proceeding will comply with all responsibilities according to the court's direction. This favors all the creditors who stand to realize some kind of financial gain when the deceased person's assets are distributed.
What are the bond amounts and costs?
Bond amounts are generally established by the obligee in the trustee surety bond agreement, which is the court presiding over asset distribution. The bond amount consists of the total amount of coverage provided for the deceased's assets, and it represents the maximum amount of money that a surety company would have to pay out if a claim were to be filed against the bond. The court might literally set almost any value as the bond amount, but it will always be in accordance with the level of assets to be distributed.
By contrast, the cost of the bond, which is also referred to as the bond premium, is set by the surety agency itself. The premium for the bond is the amount the principal will have to pay, generally on a monthly basis, to keep the trustee bond in effect. For trustees with good credit history, the cost of getting a bond is likely to be considerably less than 5 percent of the bond amount. However, for trustees with relatively poor credit history, it will generally cost much more, because trustees with bad credit represent a greater risk to the bonding company than do those with good credit.
How do I get a trustee bond?
First, you will have to fill out an online application form and submit it to the company of your choosing. NFP, the largest surety company in our country, and one which is authorized to operate in all 50 states, is a great choice. Assuming your application is approved, you would then have to sign an indemnity agreement and return it to the surety, along with your payment. Within a few business days, you will receive your bond and your coverage will be in effect.
We can often expedite the process, as we are large enough to be able to write some bonds in-house, and have fostered strong relationships with some of the most reputable bonding companies in the industry. We started our bonding business back in 1984 and we love what we do.