How to Easily Obtain an Estate Administration Bond in Ontario
Finally, a Simple Path to Approval
On almost a weekly basis, we get a frustrated call from a law firm or an executor telling us that they need an estate administration bond and have been trying for weeks with no luck. They’ve either been speaking to an inexperienced insurance broker, or they’ve been calling bond companies directly and had little success finding someone to take their call let alone help them. In some instances, a submission has been made directly to a bond company, but it is taking weeks to go through the process and they have been jumping through hoops to no avail. The reality is that obtaining an estate administration bond should not be hard. Estate administration bonds have provided insurers with a very low loss experience, but because there are only a few insurers that issue these bonds and very little competition amongst brokers, insurers have remained very conservative in their underwriting. Over the years we have identified this problem and created an exclusive estate administration bond program with an insurer. Our program operates under a set of underwriting parameters that allow for approvals in all circumstances. The following are the main underwriting parameters that need to be considered:
1. Hire a Lawyer
This is one of the most important underwriting criteria in obtaining an estate administration bond approval. First off, the bond guarantees that all creditors and beneficiaries receive their portion of the estate according to the Will and/or a court order. Assessing the distribution of the estate assets can be very involved and not always easy. Various searches and legal interpretations will be required and liaising with the courts is best done by a professional. Without a lawyer involved, mistakes in distributing assets can be made which may ultimately lead to a claim against the bond. In addition, a lawyer has a duty to act according to the law and advise you correctly. They can be liable in the event of incorrect advice, so naturally this check and balance would reduce the risk of errors in estate settlement. And since the bond insures against these errors, having a lawyer involved reduces this risk.
2. Use a Surety Bond Broker Experienced with Estate Administration Bonds
In order to understand the importance of using the right broker, let’s discuss how the surety bond industry is set up: Surety bonding is a small niche section of the insurance industry and surety bonds are issued by insurance companies through a network of insurance brokers. Surety represents a very small fraction of the total insurance business transacted. On top of that, estate administration bonds represent a small fraction of the surety bonds issued with the majority being issued for construction and condominium development. To make matters worse, there are only a select few insurance brokers who specialize in surety bonds. All this to say that it is paramount you find a surety bond broker who specializes in estate administration bonds. Only these surety brokers have access to the correct insurers that issue estate administration bonds and understand the underwriting parameters we are discussing.
3. Applicant with a Strong Personal Net Worth
Since the bond guarantees the executor will distribute the assets appropriately, it only stands to reason that the bond company wants to know details about the executor. As it is not feasible to personally get to know the executor, one of the main criteria is to obtain the executor’s personal net worth. The theory goes that if an applicant has a strong personal net worth, they are less likely to misuse funds of the estate and have developed a certain sophistication required to act as executor. It is very important to note that people with a low net worth can still be approved, it just means that it might require a bit more information and some additional questions and requirements may be needed. For example, a lawyer may have to be retained for the entire estate settlement to give the bond company confidence that things will be settled correctly.
4. Joint Control and Professional Undertakings
For tricky estates, the bond company may ask the lawyer to be part of the asset distribution through some type of joint control agreement. This agreement could be in the form of sign offs on cheques issued from the estate account, or to involve the lawyer in key aspects of the distribution. In addition, an undertaking to give financial reporting at different stages in the estate settlement may be required. These undertakings can be requested from law firms, accountants, or other relevant professionals. Although Joint control and undertakings aren’t typically required, it is sometimes the only way to get an approval. In fact, almost any estate bond can be issued with different levels of control over the executor’s decision making power.
5. Complete Submissions
When evaluating a bond submission, the first impression is very important. Underwriters often make quick decisions, and a thorough and organized application always comes off better. The submission and the brokers feedback are all the bond company receives. A good submission makes you look professional and competent. Working with a knowledgeable broker will help you properly gather and ultimately submit this information. A good broker will understand the situation in depth and relay this in a thorough and clear way to the bond company.
In practice, there are very few cases when a bond approval cannot be obtained. Sometimes there needs to be creative solutions to secure the bond company and make them comfortable that their bond is not at risk. Working with a competent broker and a lawyer will help you navigate the process.
With any questions or for more information, please contact us.