When it comes to complicated estates in Ontario, the courts may request a “Surety Bond for Estate Executors” before they can issue a certificate of appointment of estate trustee commonly known as “Probate”. If the courts require an Estate Administrator Bond, you are probably asking yourself and anyone involved: What’s an Estate Administrator Bond? Why do I need an Estate Administrator Bond? How do I get a surety bond as an estate executor or administrator? To answer these questions, first you need to understand the nature of the estate bond obligation and its purpose.
…you are probably asking yourself: “What’s a surety bond? Why do I need a surety bond? Who can help me get one?
What’s a Surety Bond for an Estate Executor?
The Estate Administrator Bond guarantees that the estate trustee will faithfully perform his/her duties as administrator/executor of an estate. In Ontario, the principal must:
- File an inventory of the assets and liabilities of the estate with the Court;
- Pay all legitimate creditors of the estate;
- Distribute the remaining assets of the estate to all legitimate heirs; and
- Prepare an accounting of all transactions. A final accounting is required after all creditors have been paid and the remaining assets are distributed. In addition, annual accounting may also be required if it takes the administrator/executor more than a year to fulfill all of her duties.
Why do I Need an Estate Administrator Bond?
The Estate Administrator Bond protects creditors and heirs from any loss stemming from the acts of an ill-qualified or dishonest administrator/executor. Effectively, the Estate Administrator Bond protects the beneficiaries portion of the estate. The Estate Administrator Bond amount is usually at least the value of the assets of the estate which is common in Ontario, although some courts require the bond to be twice the value of the assets.
How do I get an Estate Administrator or Surety Bond as an Estate Executor?
Without a decent understanding and good, sound advice, acquiring a surety bond can be a long drawn out process riddled with wasted time and energy. There are important steps along the way which you must understand in order to manage your expectations and get that bond!
Step 1: Choosing a Broker
The first thing to know is that in Ontario and most provinces, you will need to work with an insurance broker who acts as an intermediary between you and the bond company. Your broker will guide you through the process and work with you to gather the information needed to apply for the Estate Administrator Bond. The brokers that have expertise in this area are known as “surety bond brokers”. Estate executor bonds are a niche of insurance, and if your broker doesn’t specialize in this area, you run the risk of learning the process together.
Step 2: Know what is required to qualify
Depending on the estate composition, bond companies have certain conditions that must be met in order to qualify for a bond. They are as follows:
Character and Stability of the Applicant
Although not an absolute rule, the bond company likes to see that the applicant has an established and stable career. It is considered a plus if they have a background in law, accounting or some other profession that is applicable to his or her duties as an executor.
Financial security of the applicant is a major consideration to qualify for a bond. The reasoning being that if the applicant is financially strong they are much less likely to misuse funds of the estate. The minimum net worth position varies with the size of the estate, but generally if the applicant is in good financial standing without high debt levels, the bond company will be satisfied.
Retaining a lawyer to settle the estate
Given that estate settlement is a complicated process, one of first things the bond company considers is whether or not you are working with an attorney. Involving an attorney ensures that the rules of estate settlement are followed and increases the likelihood that there will be no misappropriation of estate funds. Although it’s an additional expense, in the long run hiring an attorney and doing things the right way will save you time and money.
Co-Applicant or Co-Guarantor
In some instances, the bond company will request the attorney to be named as a co-principal on the Estate Administrator Bond. This is usually done in situations where the estate is very large and/or complex. It ensures the attorney has direct responsibility and is held accountable by the court for handling the estate.
In the event that the applicant doesn’t meet the minimum net worth thresholds, the bond company may require a co-guarantor to the Estate Administrator Bond, or a co-applicant. This is very similar to a bank requiring a co-signor for a loan when the applicant’s credit isn’t sufficient. Often times another family member or beneficiary in a better financial position will be willing to co-sign giving comfort to the bond company.
Joint Control Agreement
Provided the attorney agrees, in some instances the bond company will require the lawyer to co-sign all transactions regarding the estate that exceed certain monetary limits. Joint Control provides some assurance that the attorney will be involved in the decisions regarding the liquidation and distribution of the assets of the estate.
Step 3: Dealing with complications of the estate
Minors as beneficiaries
If there are minors involved in the estate, it will most likely mean the estate cannot be wound up until they reach the age of majority or the age designated in the will. This can create an issue where the estate will be outstanding for multiple years. This can create a challenge for the bond company and additional underwriting of higher fees may be applicable.
Estate includes an ongoing business
Often times the deceased was a shareholder or owner of a business that is still active. In this case, before an estate can be settled, the shares must be sold, or the business must be passed on to one of the beneficiaries. As you can imagine, there are potential problems that could arise which may impact estate settlement. In these cases, as much detail as possible about the business should be provided along with the plan to handle the sale or transfer of control along with the consents of beneficiaries to that plan.
The applicant is indebted to the Estate
In the instance where the proposed trustee is indebted to the estate, this can cause an issue. In order for the bond to be issued, the bond company would need some comfort by way of a plan or security that the debts will be repaid.
Step 4: My Estate Bond Application is Approved! Now What?
When applying for an Estate Administrator Bond, your broker will have you complete an application which you will sign and have witnessed. This application contains something called an indemnity agreement by which you give your personal covenant to the bond company. By signing the indemnity, you acknowledge that the bond company may pursue you, the executor, should there be any misuse of funds which causes a paid claim under the Estate Administrator Bond. It is important to know that executor surety bonds are never issued without this personal indemnity in place.
Estate Bond Costs
It is very important for the estate trustee to understand that the cost of the bond can come from the funds of the estate. The trustee is not expected to bear the cost of the Estate Administrator Bond. Once an Estate Administrator Bond is issued, it cannot be cancelled and is considered “at risk” until the estate is settled. Typically estates will take several years to settle so bonds are charged for a minimum of 2 years up front and the rate can vary depending on the risk profile of the applicant and the complexity of the estate.
Issuing the Estate Administrator Bond
The bond form is supplied by the Probate Court. Your broker should have the bond form and will handle this for you. You will be required to sign and witness the Estate Administrator Bond and your lawyer will help you file it in court. Before issuing the Estate Administrator Bond, your broker will request the original bond application which contains the indemnity along with any other required documents such as a joint control agreement.
As you can see there are many factors to consider when purchasing an executor bond. Although it can seem overwhelming, if you work with the right professionals it can be relatively simple. Your goal is to obtain the bond so that you can become appointed as an estate trustee. Equipped with this knowledge, you should be well on your way
How to Apply
In order to apply for an Estate Administrator Bond, the following documents are required:
- Inventory of the Estate of the Deceased Person
- Personal Net Worth Statement of the Deceased Person
- Death Certificate
- Last Will (if available)
- Application of Appointment for Approval to the Court
Alternatively, you may email the documents to firstname.lastname@example.org.
Once the paperwork is in place, the turnaround time is generally 2-4 hours for an Estate Administrator Bond.
With any questions, please call us at 1-888-241-5656