Estate Bond Qualification & Approvals

Author: Jamie Collum

What is needed to get approved?

Estate administration bonds are something that most people don’t know about until they need one. If this is new to you, an estate administration bond is an insurance policy that protects the beneficiaries from the potential of an executor who doesn’t distribute the assets of an estate the way they are meant to be. Depending on the situation, the courts might require the executor to purchase this insurance.

Insurance companies who issue surety bonds, review the proposed executor in order to decide if they will bond the executor for the estate settlement. Rather than simply list the documents you need to apply, this post goes into more detail about the underwriting criteria and the thought process of the bond company who gives the ultimate approval. The following four items are things you need to know in order to get approved.

Strong & Trustworthy Applicant

In order to determine whether or not the applicant will be approved, the bond company wants to understand who this person is. Because it isn’t feasible to personally get to know the executor, they look at the person’s occupation, credit history and personal net worth to get a sense of their capabilities. For example, an applicant is more favourable if they worked at a bank or a law firm as it likely helps them better understand their role as an executor. A strong credit history and personal net worth gives the bond company confidence that the executor is able to handle finances and thus an estate settlement. It is very important to note that people with a low net worth or occupations that aren’t financial in nature can still be approved, it just means that it might require a bit more information and some additional questions and requirements may be needed. For example, a lawyer may have to be retained for the entire estate settlement to give the bond company confidence that things will be settled according to the Will or in the absence of a Will, the court order.

Working with a Lawyer

Although it may seem obvious, using a lawyer is one the most important factors in bond approvals. A lawyer understands the requirements of estate settlement and if retained, they have a duty to act according to the law. Without a lawyer involved, mistakes can be made which can lead to claims against the bond. For tricky estates, the bond company may ask the lawyer to be a part of the asset distribution through some type of joint control in order to minimize the risk of misused estate funds. It is sometimes the only way to get an approval and in fact almost any estate bond can be issued with different levels of control over the executor’s decision making power.

Beneficiaries Consent

When beneficiaries don’t get along and don’t agree with the appointment of an estate trustee, this can cause problems down the road. Litigation can come into play if they disagree with how the assets were distributed, and this is of concern to the bond company as claims can be made against their bond. Clearly getting the beneficiaries to consent will help you get the bond approval. If it’s not possible to get beneficiary consents, it may come back to using an attorney in a joint role to ensure that things are done properly and there isn’t any room for litigation.

Complete submissions

When evaluating a bond submission, the first impression is very important. Underwriters often make quick decisions, and the more thorough and organized your application is, the better light it puts you in. Because they don’t know you, that’s all they have to go from so if your submission is thorough, it makes you look professional and competent. Working with a knowledgeable broker will help you properly gather and ultimately submit this information. A good broker will understand the situation in depth and relay this in a thorough and clear way to the bond company.

The reality is that there are very few cases when a bond approval can’t be achieved. Sometimes there needs to be some creativity in order to secure the bond company to make them comfortable that their bond isn’t at risk. Working with a lawyer and a good broker will help you navigate the process and sometimes all it takes is a quick call between the bond company and lawyer to give the confidence needed for the approval.

With any questions or for more information, please contact us at 1-844-241-5656.