August 15, 2012

Probate Bond

When a person dies, called the decedent, and leaves behind a will, the will's executor will need to probate the will. Consequently, a probate bond is commonly required for this process. The following 6 questions address some key aspects of a probate bond.

1. What is a probate bond?

A probate bond is an insurance policy for associated parties of the decedent should the executor breach a fiduciary duty while administering the decedent's estate during probate.

2. How does a probate bond work?

If an executor breaches a fiduciary duty, affiliated parties of the decedent may seek payment from the bond company to redress the injury caused by the executor's misdeed(s). Thereafter, the bond company is entitled to reimbursement from the executor for up to the amount expended by the bond company. The bond company's liability is generally limited to the amount of the bond.

For example, assume Earl was the executor of Wilfred's will. Wilfred's estate consisted of a home and a small bank account. The will's sole beneficiary was Wilfred's neighbor Beatriz. Earl obtained a probate bond from a bond company during the early stages of probate. During the probate's administration, Earl failed to timely pay the mortgage payments and the home was foreclosed. This constituted a breach of Earl's fiduciary duty as he failed to exercise ordinary care and diligence when managing the home. Prob C § 9600(a). Beatriz then filed a motion in Wilfred's probate case to have the bond company award her damages for Earl's breach. The bond company would then award damages to Beatriz and seek reimbursement from Earl for the amount expended to Beatriz.    

3. Is bond required?

No, bond is not required in the following situations
  • The will waives bond.  Prob C §8481(a)(1).                                                                              Although the court may require bond even though the will waives the requirement of bond if: 
    • for good cause, on its own motion or on petition of an interested person Prob C §8481(b) and 
    • if the proposed representative resides outside California or for other good cause. Cal Rules of Ct 7.201(b).
  • All beneficiaries in writing waive bond and the will did not require bond or there is no will. Prob C §8481(a)(2).
  • A trust company is appointed executor. Prob C §§83, 301(a).
4. How do you obtain a bond?

The executor will need to file an application with a bond company which will then conduct a credit check of the executor. The cost of the bond is directly proportional to the executor's credit worthiness. The better the credit, the less expensive the bond will be and vice versa.

5. How much will be the bond?

The bond's size generally correlates with the estate's size. 

For example, per Prob C § 8482(a)(1)-(3), "the court in its discretion may fix the amount of the bond, but the amount of the bond shall be not more than the sum of:
  1. The estimated value of the personal property.
  2. The probable annual gross income of the estate.
  3. If independent administration is granted as to real property, the estimated value of the decedent’s interest in the real property."
 6. Can bond be changed?

Yes bond can both be increased and decreased during probate. For example, the bond might be increased if the executor uncovers previously undiscovered assets of the decedent. Conversely, the bond might be decreased if the appraised value of the decedent's assets are less than estimated.