Estate Administration Bonds: Top Ten Questions

Author: Andrew Cartwright

1) Why is it so difficult to obtain an Estate Administration Bond?

When you look at the surety bond market overall, surety is a niche segment of the insurance industry. The pool of insurance companies, brokers and underwriters that understand the product is much smaller than those that understand insurance. Estate Administration bonds are an even smaller sub set of that pool. The challenge is that unless you are utilizing a broker that understands surety bonds and has relationships with the right sureties then the process to secure an estate administration bond can be time consuming, frustrating and expensive.

2) How much does it cost to secure an Estate Administration Bond?

The general rule of thumb is that an estate administration bond costs anywhere between 0.5% and 1% of the value of the bond required. Many surety bond companies bill these fees annually until the estate administration has been completed, requiring the original bond to be returned. However, at FCA we charge this as a one time fee regardless of the time it takes to wind down the estate. This can amount to significant savings for the estate.

3) What is required to secure an Estate Administration Bond?

There are really three areas of focus for a surety company when looking to write an estate administration bond.

a) Personal Net Worth of the Executor – in the mind of a surety, they want to see the executor in a stable financial position. This does not mean that they have the same or more personal worth than the bond amount but they do want a sense the individual is in a stable position and isn’t overly leveraged.

A significant part of underwriting these bonds is the comfort that the estate will be wound down according to the will or applicable laws. The more stable the executor the less chance there is of moral hazard.

b) Inventory of Estate – the surety will want to understand what is included in the assets of the estate. These can range from very simple assets like cash accounts and real estate to more complex like an ongoing business that needs to be valued and sold. Whether the estate is simple or complex shouldn’t impact your ability to secure the bond, it may just mean a few additional questions to understand how the assets will be dealt with.

c) Estate Executor Experience – the final item that sureties are looking at is whether the estate executor has the prior experience to manage the wind down of the estate. This doesn’t mean they need to be a lawyer or accountant but any relevant experience or skills that would lend to managing the affairs of an estate are helpful. If they don’t have these skills, working with a strong wills and estate expert is something that the bond company will look for.

4) What does an Estate Administration Bond cover?

An estate administration bond can be required by the court for a variety of reasons. It can be required when there’s no will, the estate executor is a non-resident of Canada, some of the beneficiaries are minors, or there is dissention amount the beneficiaries of the estate. Regardless of the case, the bond guarantees that the executor will wind down and distribute the estate according to the will or applicable estate law. This includes distributing the assets to the rightful beneficiaries, paying creditors and dealing with estate taxes.

5) How long does it take to secure these Estate Bonds?

If you have been an executor before or are a wills and estates lawyer who has been required to source this for a client, it is likely you’ve had a bad experience at some stage and the process has taken weeks or months. It doesn’t need to be this way if you are working with people who are knowledgeable with the product.

At FCA Surety, we have in-house authority to issue these bonds and also have connections with the key sureties that write and understand these bonds. As a result, we can typically secure these bonds in 24-48 hours.

6) Why is the surety asking to have the original bond returned?

Sometimes sureties will ask estate executors to have the original bond returned at the conclusion of the estate. Some sureties require this for all estate administration bonds they issue and will continue to bill an annual fee until the bond is returned.
The main reason they require this is to confirm an estate has been wound down and ensure there’s no more liability on the bond. This can be a cumbersome and expensive process, and our office does not require the original bond to be returned at the conclusion of the estate.

7) What is your advice to an individual who is applying for or been named as an estate executor?

Being an estate executor is something completely new for most people. The process isn’t easy and it can be challenging to understand. Furthermore, this burden of being an estate executor is open placed on a person during a very challenging and emotional time.

Do your best to be patient with yourself and rely on the experts. Make sure you are working with a lawyer who specializes in wills and estates. If you don’t have a contact, reach out and we can provide one.

Also make sure, if a bond is required that you are working with a surety broker that specializes in these bonds. There are many that claim to understand the product. Ensure you ask about their prior relevant experience.

8) Can a lawyer dispense of the requirement to provide a bond?

The short answer is yes. However, this process can take time and money and requires a skilled legal expert. There is no guarantee this will succeed and if it doesn’t, you could be weeks or months down the line and be unable to access estate assets.

You should consult with your wills and estates lawyer and get their opinions on the costs, benefits and likelihood that a court will dispense of a bond before deciding on a direction. It also may make sense to have a preliminary conversation with a surety broker regarding rough costs and timeline based on the specifics of your case.

9) As an Estate Executor what is my exposure under the bond?

Like any other surety product, an estate administration bond is built on the foundation of indemnity. The surety will review the information provided by the estate executor regarding the specifics of the estate. Once they have completed review and approved the bond, they will require the estate executor to sign an indemnity agreement.

This agreement gives the sureties certain rights to recover any losses from an estate executor if the surety is required to pay under a loss the bond. Typically, for this to occur an estate executor would need to improperly distribute funds. This is important to keep in mind as every estate administration bond regardless of which surety provides it will require the signing of this agreement.

10) Is the process for Estate Administration bonds similar to Guardianship bonds?

The process to secure a Guardianship bond is very similar to that of securing an estate administration bond. There are a few items that sureties will look at that are a bit different. An example, being the management plan but in general the process is quite similar. Please reach out to a surety bond expert at FCA Surety to discuss further.