Trustee Bonds: Essential Surety Bond Guide
Trustee Bond Basics
- Protects the interests of a trust’s beneficiaries
- Ensures a trustee works with honesty and competence
- Ensures a grantor’s wishes are delivered to the trust beneficiaries
- Is required by state law
- Covers financial loss caused by a breach of trustee’s duties
What Is A Trustee Bond?
A trustee bond is a type of court bond that protects a trust beneficiary against financial loss resulting from fraud, dishonesty, or other wrongful acts committed by a trustee in the course of their duties.
A trustee bond can be thought of as a financial guarantee that ensures a trustee, someone who is responsible for managing the assets of another person or entity, does their role with integrity and competence. The bond is designed to protect the interests of the person or entity whose assets are being managed, and to ensure that the trustee fulfills their responsibilities in a trustworthy and responsible manner.
The trustee is responsible for ensuring that the assets are managed appropriately and in accordance with the grantor’s wishes for the beneficiaries. Many states require a trustee to obtain a surety bond prior to being appointed to a position as a guardian or conservator of another person’s estate.
Three Parties To A Trustee Bond
There are three parties involved in a trustee bond:
1. The Principal
This is the person or entity who is responsible for managing the assets of another person or entity, known as the obligee. The principal is required to obtain the bond as a condition of their appointment as a trustee.
2. The Obligee
The obligee is the person or entity whose assets are being managed by the principal, known as the trustee. The obligee is the beneficiary of the bond and can file a claim against the bond if the trustee fails to fulfill their responsibilities in a trustworthy and responsible manner.
3. The Surety
Also known as the bonding company, this is the company that issues the trustee bond and provides the financial protection to the obligee. If a valid claim is filed against the bond, the bonding company will investigate the claim and, if it is determined to be valid, will pay out the claim up to the amount of the bond.
How Do Trustee Bonds Work?
A trustee bond works by providing financial protection to the person or entity whose assets are being managed by a trustee. If the trustee fails to fulfil their responsibilities in a trustworthy and responsible manner, the bond can be used to compensate the person or entity for any losses that may result.
The specific terms and conditions of a trustee bond will vary depending on the circumstances and the requirements of the trust or estate being managed. However, in general, a trustee bond provides protection in the event that the trustee:
- Misappropriates or mishandles funds or assets
- Fails to properly manage the assets of the trust or estate
- Engages in fraud or other dishonest activities
If the trustee violates the terms of the bond, the person or entity whose assets are being managed can file a claim against the bond to seek compensation for any losses that result. The bonding company that issued the bond will then investigate the claim and, if it is determined to be valid, will pay out the claim up to the amount of the bond.
It’s important to note that a trustee bond is not insurance for the trustee, and it does not protect the trustee against personal liability or legal action. Instead, it is designed to protect the interests of the person or entity whose assets are being managed, and to ensure that the trustee fulfils their responsibilities in a trustworthy and responsible manner.
In the event that a claim is made against the bondholder, the surety company will pay up to the full amount of the claim.
As part of the agreement between the beneficiaries of a trust, the trustee, and the surety company which backs the bond, the surety company agrees to cover all valid claims made by the beneficiaries against the trustee, up to the full value of the bond.
If this occurs, however, the trustee (also known as the principle) must repay the surety company back the total settlement, plus interest and fees.
Who Needs A Trustee Bond?
A trustee bond is often required in situations where a person or entity is responsible for managing the assets of another person or entity. This can include situations such as:
- When someone is appointed as a trustee of a trust or an estate
- When someone is appointed as a guardian for a minor
- When someone is appointed as the executor of a will
- When someone is appointed as a conservator for an incapacitated individual
In these situations, the person or entity whose assets are being managed may require the trustee to obtain a bond as a condition of their appointment. This is to ensure that the trustee fulfills their responsibilities in a trustworthy and responsible manner and to protect the interests of the person or entity whose assets are being managed.
In addition, trustee bonds may be required by law in certain situations, such as when a person is appointed as a trustee of a public agency. In these cases, the bond is typically required to provide financial protection to the agency and to ensure that the trustee fulfills their responsibilities in a trustworthy and responsible manner.
Overall, anyone who is responsible for managing the assets of another person or entity may be required to obtain a trustee bond, depending on the specific circumstances and requirements of the trust or estate being managed.
How Much Does A Trustee Bond Cost?
The cost of a trustee bond, also known as the premium, will vary depending on a variety of factors. Some of the factors that can affect the cost of a trustee bond include:
- The amount of coverage needed: The larger the amount of assets being managed, the higher the bond amount will typically be, which can increase the cost of the bond.
- The creditworthiness of the applicant: Bonding companies will typically review the financial history and creditworthiness of the applicant when determining the cost of a bond. A higher credit score may result in a lower premium, while a lower credit score may result in a higher premium.
- The specific terms of the bond: The terms of the bond, including the length of the bond period and any exclusions or exclusions, can also affect the cost of the bond.
It’s important to note that the cost of a trustee bond is typically a small percentage of the bond amount, and it is usually paid as an annual premium. The exact cost of a trustee bond will depend on the specific circumstances and requirements of the trust or estate being managed.
To get an estimate of the cost of a trustee bond, you can contact a bonding company or insurance agency and provide them with information about the bond amount and any other relevant details. They will be able to give you an estimate of the cost based on the information you provide.
How To Get A Trustee Bond
The application process
With Simpli Surety, getting a trustee bond is easy.
Simply fill out our single-page instant trustee bond application, submit your trust information along with your credit score, and qualified applicants will be approved and bonded in a matter of minutes.
Surety Underwriting
Once your information is submitted, our credit-based automated underwriting process will render a decision right away.
After you have submitted your application, we’ll review it and determine whether to approve your bond. This process is known as surety underwriting. During this process, our underwriting team will assess your financial history, creditworthiness, and any other relevant information to determine whether you are a good risk for the bond.
Writing the bid bond.
Once approved, we’ll email you a copy of the bond and, if required, an indemnity agreement for signature.
Once signed and the premium payment is made, the official bonds will be sent directly to the obligee. That’s it. You’re bonded!
FAQs
What happens if you receive an inheritance from a trust?
Capital gains taxes must be paid on earnings and income must be reported to the IRS by the trust itself. It must annually distribute to beneficiaries the income derived from trust assets. If you receive property from a simple trust, you must record it as taxable income and pay the necessary taxes.
Do I have to pay taxes on money I got via a trust?
Taking money out of a trust is taxed differently from taking money out of regular investing accounts. Taxes must be paid by trust beneficiaries on any income and other distributions they receive. Taxes are not due from trust beneficiaries on the repaid principal from trust assets.
What are a trustee’s responsibilities?
The assets held by a trust become the legal property of the trustee, who also has the fiduciary duty to manage those assets and carry out the trust’s objectives.
