Creating and maintaining an estate to pass on to others requires thought and the assistance of accountants and attorneys. Also important is creating and maintaining a will to ensure that designated beneficiaries can receive the estate.
But there are times in which a decedent has a legal estate but no will specifically outlining where assets and payouts should be directed. Or the person who died might have prepared a will but failed to name an executor. In some cases, the estate/payouts might go to close relatives (think spouse, parents, or children), though this can depend on the state in which the decedent lived.
But if there is any confusion (such as lack of a will/executor or no designated beneficiaries), then the estate could end up in probate court. The court, in turn, will appoint an administrator to oversee the decedent’s estate. And that court might mandate an administrator bond.
An Overview of Court Bonds
The administrator bond falls under the category of court bonds. Court bonds are a catch-all term for surety bonds that are necessary when taking actions through the court. These bonds are in place to help reduce the risk of financial loss or to ensure that a court-appointed task is taken care of.
Court bonds have two categories: Judicial bonds and fiduciary/probate bonds. Judicial bonds are in place to limit losses from a ruling. Meanwhile, fiduciary/probate bonds are required by court-appointed individuals that are responsible for others’ assets. The administrator bond is an example of a fiduciary/probate bond.
Specifics of Administrator Bonds
Also known as administration bonds, these instruments provide added assurance that the appointed administrator will handle the estate ethically and legally.
This is important, as an administrator is charged with paying the estate’s debts, gathering information, and distributing assets and payouts to designated individuals. This is a great deal of responsibility. As such, the administrator bond’s purpose is to limit an estate’s financial losses in the event an administrator acts illegally or improperly. Specifically, this bond protects creditors and beneficiaries, not the administrator, with the total bond amount based on the estate’s value.
Here’s how this works. The court-appointed administrator is responsible for obtaining this bond from a surety company, which runs a background and credit check on said administrator. Those checks are necessary to determine how much should be paid for that bond. Once issued, the bond is presented to the court.
If the administrator fails to follow the decedent’s wishes or act in accordance with the law, the following can happen:
- A claim can be filed against the administrator bond, and the surety company will compensate if the claim is valid.
- The administrator has to reimburse the surety company for monies given to the claimant(s).
Not Always Necessary
While the administrator bond provides protection if an estate ends up in probate court, the court doesn’t always require this bond. If a legal will exists or a financial institution is the acting administrator, the bond isn’t needed. But the general rule of thumb is if an estate lacks a will, the court will likely require an administrator bond.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.