Surety Bond Quarterly - Summer 2015 - 23

WHEN OBTAINING THE APPLICATION FROM
THE NOMINATED FIDUCIARY, THE BOND
PRODUCER SHOULD BE SURE TO OBTAIN A
SIGNATURE ON THE INDEMNITY AGREEMENT.
Third, the probate court can order
a trustee of a trust to obtain a bond.
This often happens when a party
moves to register an otherwise private trust with the court. Trustee
bonds are also becoming more common with the use of Special Needs
Trusts, which are special trusts that
permit individuals to obtain a lump
sum of money (often from a law suit
settlement or inheritance) without
losing the ability to continue receiving government benefits.
Finally, courts can order bonds in
connection with the sale of real estate.
These bonds specifically protect the
proceeds of the sale of a parcel of real
estate until those proceeds are used
for their intended purpose, such as
payment of creditors, distribution to
heirs, and support of the ward.
Probate bonds must almost always
be approved by the court. It is critical that the court review the bond
and power of attorney to ensure
that it is appropriate. If any issues
arise, the obligee or principal should
not hesitate to immediately contact
the surety.
Underwriting/issuing
probate bonds
When a court orders a fiduciary to
obtain a bond, that fiduciary will have
to find a bond producer to issue the
bond. In some jurisdictions, there
are producers available at desks in
the courthouse to make the process
simple. In other jurisdictions, the
fiduciary may turn to his or her personal insurance provider to obtain
the bond. Some agencies have an
on-line presence and permit applications over the internet.
The bond producer issuing the
bond should be sure to use the
surety's Bond Application, which
should contain an Indemnity
Agreement. Once the producer has
obtained the required information
from the applicant, the application

should be submitted to the surety to
ensure that it meets all underwriting
requirements. The bond producer
should make sure to explain the purpose of the bond to the applicant and
should also explain the importance
of accounting for all assets of the
estate. These explanations at a very
early stage in the process can help
avoid potential claims down the road.
It is critical that fiduciaries understand that they should not engage in
cash transactions, that they should
write checks for all expenses they
pay, and that they should retain all
receipts. They  should also obtain
court approval for any significant
or out-of-the-ordinary expenditures.
The producer must also make sure
that the fiduciary understands his or
her duties, such as filing an Inventory
and Annual Accounts with the court. It
is important that the fiduciary understands that he or she cannot cancel
the bond by failing to pay premiums.
The bond can only be cancelled by an
order of the court. This means that
the surety's exposure, as well as the
fiduciary's indemnity obligation, can
last the entire time that the fiduciary
serves and even beyond that time if
the fiduciary's Final Account is not
allowed by the court, the fiduciary
is not discharged, and the bond is
not cancelled.
The bond producer should also
evaluate the character and qualifications of the applicant. Producers
often develop relationships with
attorneys practicing probate law in
order to obtain probate bond business from them. While the attorneys
may be known to the producers, each
of their clients should be independently evaluated.
When obtaining the application
from the nominated fiduciary, the
bond producer should be sure to
obtain a signature on the Indemnity
Agreement. It is also critical to understand the applicant's prior experience

handling estates and serving as a
fiduciary, the assets of the estate or
trust, and whether the fiduciary's
attorney will be involved throughout the duration of the administration
of the estate. In fact, some sureties
require attorney involvement prior
to agreeing to issue the bond. The
producer should make sure to obtain
a basic understanding of the issues
within the estate.
Underwriting considerations
Application
As previously indicated, it is critical
that the bond producer obtain the
applicant's signature on the Bond
Application containing the Indemnity
Agreement. In addition, the application should have information regarding the applicant's employer, income,
and net worth. In the event of a loss,
this will aid in recovery of not only
the loss, but also loss adjustment
expenses, such as attorneys' fees
and costs as well.
The application and underwriting
process for a probate bond is different from the process for a performance and payment bond. For
example, there are very few documents involved (unless the penal sum
of the probate bond is exceptionally
large). The surety generally does not
review financial statements or balance sheets. At best, the surety will
review documents from the probate
court file (such as the Inventory, if one
has been filed, or an order appointing
the fiduciary) and may run a credit
report. Because there are few documents involved, the application and
the information the producer receives
from the principal are critical.
Control of accounts
The bond producer must also
determine if the surety will require
controls on the estate assets. The
controls vary from surety to surety
and state to state. They could include
joint control of banking or investment accounts with the surety or
its authorized agent, joint control
of banking or investment accounts
with the fiduciary's attorney, court
orders that restrict the assets of the

NATIONAL ASSOCIATION OF SURETY BOND PRODUCERS | WWW.NASBP.ORG

23


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Table of Contents for the Digital Edition of Surety Bond Quarterly - Summer 2015

NASBP Upcoming Meetings & Events
2015-2016 NASBP Executive Committee
From the CEO - There is Poetry in Surety Claims, Surely
Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Profile: President Susan Hecker
Developing Your Leadership Vision
Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
An Introduction to Probate Bonds
Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
The AIA Describes Updated and Expanded Design-Build Documents Family
Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover1
Surety Bond Quarterly - Summer 2015 - cover2
Surety Bond Quarterly - Summer 2015 - 3
Surety Bond Quarterly - Summer 2015 - 4
Surety Bond Quarterly - Summer 2015 - 5
Surety Bond Quarterly - Summer 2015 - 6
Surety Bond Quarterly - Summer 2015 - 2015-2016 NASBP Executive Committee
Surety Bond Quarterly - Summer 2015 - From the CEO - There is Poetry in Surety Claims, Surely
Surety Bond Quarterly - Summer 2015 - 9
Surety Bond Quarterly - Summer 2015 - Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Surety Bond Quarterly - Summer 2015 - 11
Surety Bond Quarterly - Summer 2015 - Profile: President Susan Hecker
Surety Bond Quarterly - Summer 2015 - 13
Surety Bond Quarterly - Summer 2015 - Developing Your Leadership Vision
Surety Bond Quarterly - Summer 2015 - 15
Surety Bond Quarterly - Summer 2015 - Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
Surety Bond Quarterly - Summer 2015 - 17
Surety Bond Quarterly - Summer 2015 - 18
Surety Bond Quarterly - Summer 2015 - 19
Surety Bond Quarterly - Summer 2015 - 20
Surety Bond Quarterly - Summer 2015 - 21
Surety Bond Quarterly - Summer 2015 - An Introduction to Probate Bonds
Surety Bond Quarterly - Summer 2015 - 23
Surety Bond Quarterly - Summer 2015 - 24
Surety Bond Quarterly - Summer 2015 - 25
Surety Bond Quarterly - Summer 2015 - 26
Surety Bond Quarterly - Summer 2015 - Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
Surety Bond Quarterly - Summer 2015 - 28
Surety Bond Quarterly - Summer 2015 - 29
Surety Bond Quarterly - Summer 2015 - NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
Surety Bond Quarterly - Summer 2015 - 31
Surety Bond Quarterly - Summer 2015 - The AIA Describes Updated and Expanded Design-Build Documents Family
Surety Bond Quarterly - Summer 2015 - 33
Surety Bond Quarterly - Summer 2015 - Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
Surety Bond Quarterly - Summer 2015 - 35
Surety Bond Quarterly - Summer 2015 - NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Surety Bond Quarterly - Summer 2015 - 37
Surety Bond Quarterly - Summer 2015 - Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover3
Surety Bond Quarterly - Summer 2015 - cover4
Surety Bond Quarterly - Summer 2015 - outsert1
Surety Bond Quarterly - Summer 2015 - outsert2
Surety Bond Quarterly - Summer 2015 - 43
Surety Bond Quarterly - Summer 2015 - 44
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