Probate Bonds
Show Table of ContentsIf the estate will go through probate, the court may require you to obtain a probate bond as a condition of appointing you executor.
Definition
A probate bond (also known as an estate bond, or more generally, a surety bond) is a form of insurance that helps protect the estate from your mistakes or even your malfeasance.
If a party with an interest in the estate feels that they have suffered financial harm because of something you have done incorrectly, the probate bond supplier will investigate, and if necessary, appropriately compensate any parties that incurred financial loss due to your incorrect actions (or inactions). You will then be required to reimburse the probate bond supplier (i.e., the surety) for any payouts, potentially with fees and interest added.
A probate bond does not protect you... it protects the estate from you.
Cost
If a probate bond is required, the court will tell you the amount of required coverage: in some cases, you may be required to purchase a bond that covers the entire value of the estate, and in others, you may be required to purchase even more than that (sometimes double!). The good news is that the value of any real estate is often excluded from coverage requirements, if the real estate will not be sold.
Probate bonds usually cost a small percentage of the covered amount (typically ranging from 0.3% - 1%). For example, if you were required to purchase $1 million of coverage, the fee might be 0.5% of that amount (i.e., $5,000). The cost of the bond depends on the size and complexity of the estate, as well as other factors, including your own personal reputation and creditworthiness (since ultimately the bond supplier will be depending on you to reimburse them for any successful claims).
Unless you have access to estate funds before being officially appointed executor, you will likely have to pay for the bond using your own personal funds. Fortunately, probate bond expenses are normally reimbursable by the estate, once you gain access to estate funds.
Finally, note that most surety companies charge an annual fee to renew the bond, typically at a price equal to the initial cost.
Avoiding Probate Bonds
Most executors would like to avoid the expense of a probate bond, since such bonds don't protect the executor, and the cost reduces the size of the distributable estate.
Will
If there is a will and it explicitly waives the requirement for a probate bond (many do), the court will not normally require you to obtain a bond.
Waiver
If there is no will, or the will is silent on the matter, many states allow you to avoid the requirement for a probate bond by obtaining a written waiver from every party entitled to inherit from the estate. This sounds like a bit of work, but it can save you thousands of dollars.
Some states have an official form for such waivers: see Probate Forms. If there is no official waiver form, the waiver from each party should include the person's name, his or her relationship with the decedent, a statement that as someone entitled to inherit from the estate, the person agrees to waive any requirement for you to obtain a probate bond. The waiver should be signed and dated; notarization is not normally required.
Note: If an estate has substantial unsecured debts, the probate judge will probably act to protect those creditors by requiring a probate bond, even if you submit waivers from all the heirs. A mortgage is a secured debt (the bank can repossess the house if the mortgage is not paid), so the presence of a mortgage (or other secured debts) should not be an issue when dealing with bond waivers.