Top 5 Things to Consider about Estate Administration Bonds
Author: Andrew Cartwright
When an estate executor or lawyer is faced with an administration or guardianship bond require it can feel daunting. We often get asked questions about why the bond is being required, what liabilities does an executor face when posting a bond, how can you secure one and what are the cost and who pays for it. Through those conversations we, at FCA Surety, felt it was important to outline some key considerations when looking at purchasing an estate administration bond.
1) There are two main scenarios when an estate bond is required. The first is when a person passes away without a will. The second is when the executor named in the will is a non-resident of the province in which the estate and assets reside. This can also be called a foreign executor bond.
The reasons that the court requires a bond in these scenarios is to protect beneficiaries and creditors. The bond guarantees that the estate executor will perform their duties and wind down the estate accordingly to the will or succession law and pay all the rightful beneficiaries and creditors.
2) The estate bond marketplace is very small. The reality being that there are only a few bond companies in Canada and a few brokers in Canada that have any expertise in this field. If you don’t land with one of these experts the process can often be very cumbersome and expensive which is why most lawyers will recommend that they attempt to secure a waiver of the bond.
However, it should be noted that if you work with the right estate bond broker this process will almost always be shorter and cheaper than attempting to secure a bond waiver from the court.
3) What do bond companies look at when deciding whether or not to provide an estate administration bond? Any bond application will include some of the following:
a. Inventory of Estate – the composition of the estate assets can have an impact of the sureties view of the risk within an estate bond. For example, cash and real estate can be easily valued and often quickly liquidated to pay creditors and beneficiaries. For these reasons, these are viewed as low risk. However, an estate that includes an ongoing business can be more difficult to value and take more time to sell thereby increasing the bond companies risk.
b. Circumstances of the Estate – the surety will also look at the circumstances surrounding the estate. Is it clear who the beneficiaries are and do they dispute the appointment of the executor of an estate. Are there any disputes among the beneficiaries. Does the executor have any relatable experience to winding down an estate and are they consulting a lawyer with wills and estate experience. All these items factor into the surety’s comfort in the circumstances around the estate.
c. Personal Worth of the Estate Executor – the surety will also look at the personal worth of the estate executor vs. the value of the bond itself. These two don’t need to be equal but the surety will want to confirm the executor has financial wherewithal. In their minds, if the gap between the bond value and executor personal worth is high, this could give rise to moral hazard and put the bond at risk.
4) It is not going to take months or even weeks to secure an estate bond. Typically, a good broker will be able to have bond terms for an executor or lawyer to review within 2-3 days and after the bonding documents are signed a bond can be issued within a week of the application.
5) The cost of an estate administration bond should not break the bank and shouldn’t result in you worrying about additional billings if the estate takes 4 or 5 years to wind down. A good broker will have solutions for you around billing that make the cost reflective of the risk and avoid administrative headaches over time. If the broker is unable explain why it makes sense or it doesn’t make sense to you then you probably aren’t working with someone that handles estate bonds often.
At the end of the day, an executor is facing a lot, they are taking on a larger responsibility having recently lost a loved one. The process to secure an estate administration bond shouldn’t make a tough situation worse.