At Estatesearch, we work with executors to secure Fiduciary Bonds during probate. A Fiduciary Bond protects the assets in the estate and is designed to ensure an executor acts honestly in managing the assets in that estate. A Fiduciary or Executor Bond, also known as an Estate Administration Bond, is a court-ordered guarantee to protect the estate’s beneficiaries and creditors from fraud, negligence, or mismanagement by the appointed executor or administrator.
Solicitors or trust companies acting as professional executors often need bonds as part of regulatory compliance and risk mitigation. In Ontario, a Fiduciary Bond is mandatory where the estate in in intestate (where there is no Will) and valued at over $350K. The minimum estate value in the other nine provinces varies.
A typical example might be where a child is the executor for one of their parents. Say the value of the estate is $1.5million, $750K made up of property, while the rest is in investments and savings. There may be a debt of $100k, so the total value of the estate is $1.4million.
The son, John, may go to a lawyer, fill out the probate application form, and this is submitted to the court. There is no Will, so the matter is Intestate. Because the estate has been valued at over $350k John needs a Fiduciary Bond. It may yet be possible to have the requirement for the bond waived by the Court provided all beneficiaries are in mutual agreement, none of the beneficiaries are minors, John is resident in the province where the death occurred, and there are no other unusual circumstances. However, anecdotally, clients tell us the Courts are increasingly reluctant to waive the requirement for a Bond, and in our recent survey, 38% of practitioners surveyed believed demand for a bond was likely to increase in the coming years.
The application process to apply for a Bond is generally fairly straightforward with the Executor providing information about themselves and their personal finances. However, bonds can be expensive ,and often, Executors are not aware of the likely costs before receiving a quotation. In this case, for an estate of this size, the bond would cost in the region of $45K.
This can be a shock, which can be managed by setting expectations with your clients at the outset where the estate is likely to require a bond. However, we also work with executors to find solutions to this common challenge. In this scenario, John has two siblings, so there are three beneficiaries in total. We would work with the executor and all beneficiaries to explore how all might contribute to secure the bond for their mutual benefit.
Working collaboratively with all stakeholders in the estate can also be important to secure a bond in other ways. Bond providers require personal indemnity from the Executor equal to the bond amount. Therefore, an Executor must prove their own net wealth is equivalent to the value of the estate of the deceased. So, for example, if John’s own wealth is valued at $1 million, in this scenario, there is a $0.4 million shortfall. However, one or more of the other beneficiaries could assist in making up the difference, enabling the bond to be granted.
In this situation, we would work to secure a joint indemnity agreement for John and his sister or brother and submit this for approval.
If the executor’s assets (property, cash, investments) are insufficient, a law firm may step in as guarantor (if professional executor), though generally, law firms may be reluctant to hold themselves out in this way. Joint administrator appointment, corporate trustees, or requesting court waiver with legal argument are also alternatives.
Securing a Fiduciary Bond
Purchasing a Fiduciary Bond is often a legal necessity, but it also serves as an essential risk management tool, especially in estates involving large sums, contentious family situations, or where professional executors have been appointed. The main delays that can occur usually relate to a lack of transparency and communication. However, John as an executor, was open and communicated well, including about his own financial circumstances, and in this scenario, we worked with the executor and estate beneficiaries to find a solution to ensure that the Fiduciary Bond was granted.
Estatesearch is in partnership with Experia Insurance Group, so we are here to guide and help ensure executors can be granted Fiduciary Bonds.
Contact us to find out how we can help or email cole.friyia@estatesure.ca for more information.