FIDUCIARY BONDS - PROBATE BOND ENCYCLOPEDIA
Fiduciary bonds protect parties that have a financial interest in an estate or in property involved in proceedings, such as bankruptcy, conservation, or liquidation. Interested parties may be heirs, infants, incompetents, creditors, or other beneficiaries. The most familiar fiduciary risks are administrators, executors, guardians, and trustees. The fiduciary is the principal and may be an individual or an institution. The fiduciary's faithful performance of duty is not considered a high-risk obligation if it receives the assistance of legal counsel and court supervision in estate matters. However, company bond underwriting specialists carefully examine significant amounts of information developed in applications or inquiries. The supervising court usually establishes the required amount of the bond penalty.
Besides being honest and intelligent, fiduciaries should also have adequate experience in business management to handle their responsibilities. A fiduciary must diligently assemble a trust estate's assets and then pay any valid estate debts as the applicable court, will, or trust deed requires, and then distribute all remaining funds. The fiduciary must strictly adhere to the laws that govern estate administration at all times. Ignorance of the law does not absolve the fiduciary from liability. Failure to perform any required obligations requires compensating the party that sustains a loss, regardless of whether the default is due to dishonesty or to error.
TYPES OF FIDUCIARIES
Administrators and Executors
These are the most common and most important fiduciaries. Their functions are similar but the way they become fiduciaries is different. A will usually names a person as executor. Either a statute or a court names an administrator and defines its duties. The administrator or executor's duties in administering an estate are basically as follows:
•Take possession of the deceased's personal property, collect debts owed to the estate, and preserve the assets safely.
•Give notice by publication (as prescribed by law) and explain that those who have claims against the estate must present them for the court to consider.
•Have an official court appraiser appraise the estate's assets and file an inventory with the court. Each item and its appraised value must be listed, along with a total valuation of the estate.
•Pay any immediate post-funeral family expenses. If there is a remaining spouse (and the statutes provide for a remaining spouse allowance), the administrator/executor must pay such allowances.
•Pay the deceased's debts and just claims against his or her estate. This includes income, personal property, and inheritance taxes.
•File an account with the court. It should include receipts, disbursements, and the balance on hand. When the account is approved, distribute the remaining assets to parties the court determines to be entitled to them. If the deceased left a will, distribution is ordered according to its terms. If there is no will, distribution is ordered according to the law of distribution in the particular state.
•When distribution is complete, give the court vouchers, receipts, or other suitable evidence of distribution and then request discharge along with the surety if permitted by law.
There are obvious pitfalls in completing each of these duties if the administrator or executor is inexperienced, careless, or unaware of them. Without a bond, beneficiaries do not have anybody to look to for redress except the fiduciary.
Trustees derive their authority from the instruments that created the trust. The trustee's general duties under either a will or a deed are for safekeeping and segregating assets. Another especially important duty is investing and reinvesting trust funds. Trustees must strictly observe the terms of the trust instrument for their protection as well as for the estate's protection. If there are questions or concerns, court orders should be obtained before making any decisions. If the instrument that created the trust does not specify the nature of the estate's investment securities, the trustee should consult the statutes for guidance to determine the type of securities in which to safely invest.
Guardians, committees, tutors, curators, conservators, and similar or comparable groups are types of trustees. Guardians have the same investment problems as trustees. They are usually held to a higher standard of accountability than the typical trustee because government entities are concerned about infants and unfortunates. In general, securities approved for investment by trustees are acceptable as investments by guardians. Guardians should not invest in unapproved securities. If laws do not address approved or appropriate types of investments, court orders should be obtained before making any investments.
Receivers in bankruptcy proceedings are appointed after the creditors of the allegedly bankrupt party file petitions. Receivers have a short term of office. They take possession of and preserve the assets of the bankrupt party until the creditors meet to elect a trustee. Trustees are directly supervised and guided by the referee in bankruptcy proceedings. The referee is an officer of the court and supervises the trust to the extent of countersigning checks that the trustee draws.
Sellers of real estate may be special commissioners, trustees, or attorneys and their terms of office are relatively short. After making the sale, the trustee or commissioner accounts for the proceeds. Real estate bonds for guardians, trustees, administrators, or executors are different because the proceeds from the sale become part of the trust and must be administered accordingly. Bonds for such fiduciaries continue until the trust expires.
It is a statutory requirement that an administrator or executor be bonded, although testators frequently direct (and the law permits) executors of wills to qualify without bond. This is unusual because it should be clear that the estate that took years of painstaking work to build up might be ruined by the actions of an inept, careless, or dishonest fiduciary without the safeguard of a bond.
Example: Adam names his son, Bruno, as the executor for his estate. He specifically states in the will that a bond is not required. Bruno was a lawyer and an accountant when Adam made his will. However, Bruno has encountered a number of difficulties during the past five years and has tried to solve his problems with drugs and alcohol. Bruno has complete control of the estate when his father dies. His family is very concerned about how Bruno will handle disposing of the estate but, because there is no bond requirement, there is little recourse (outside of a lawsuit) if Bruno does not fulfill his fiduciary responsibilities.
Fiduciaries are prohibited from using trust funds for their own benefit. If a fiduciary diverts trust funds, the bond is liable for any loss the estate sustains. While embezzlement losses may not appear until years later, the surety is liable on its bond until the statute of limitations expires.
The fiduciary's duties always include the obligation to account for the trust estate's assets and to show that it has made only legal disbursements. When the trust terminates, the fiduciary must distribute the account balance to those legally entitled to receive it. The bond protects the beneficiaries against loss through improper disbursements, even though the fiduciary made them in good faith.
Fiduciaries are required to conserve the estate and doing so may include the duty to invest its assets to yield income. The laws of each state outline the duties and liabilities of such fiduciaries with respect to conservation and investments. The bond covers the principal's liability that results from its failure to comply with any requirements.
Fiduciary bonds are written on behalf of persons the court appoints or by a will or deed of trust to take possession of an estate or property, to manage and control it, and to finally account for, transfer, or distribute it as the law requires. The fiduciary is an agent of the court and is simply the avenue the court uses to exercise custody.
Fiduciary bonds are statutory in nature. While they may differ in detail from one jurisdiction to another, they all basically guarantee that the principal will faithfully and properly perform its duties as the law requires.
The term fiduciary is generic because there are many types of fiduciaries with different functions and responsibilities. Fiduciary bonds are tailored to meet requirements of a variety of duties and state laws and the courts sanction them.
Each jurisdiction establishes laws that detail fiduciary duties and responsibilities. In addition, fiduciaries must comply with all lawful orders issued by the court that has jurisdiction over those responsibilities. A fiduciary bond covers loss that results from any failure to faithfully perform such duties or comply with such orders. There are seven groups of bonds in the fiduciary classification.
Decedents' Estate bonds
These are bonds in estates of deceased persons or persons presumed dead based on a long absence.
These are bonds in estates of legal incompetents.
These are bonds in estates of minors.
These are bonds in trust estates under a will or deed.
These are bonds filed in United States District Courts under bankruptcy laws.
Bonds in Equity Proceedings
These are bonds filed in courts of equity or courts that exercise equitable jurisdiction. They include equity receivers, liquidators, trustees, and others the court appoints to manage or liquidate property.
Miscellaneous Fiduciary bonds
These are bonds of conservators or liquidators of financial institutions and others that do not fall into any of the categories above and whose principals may or may not be subject to a court's jurisdiction.
FIDUCIARY BONDS CLASSES BASED ON LENGTH OF TERM
The analysis to this point has primarily addressed items of a general nature. Those interested in corporate suretyship (and specifically judicial suretyship) should be familiar with the types of Fiduciary bonds that encompass various types of official obligations.
For example, two classes of Fiduciary bonds can be categorized according to the functions and duties of the fiduciaries. They are:
•Where the fiduciary's duties are to collect the assets of the decedent, pay the debts, and distribute the remainder according to law. This category includes administrators, executors, receivers, and trustees in bankruptcy. These are usually short-term bonds.
•Where the fiduciary's duties are to preserve the assets, to invest them, and to disburse or accumulate the income. These fiduciaries are guardians of minors, guardians, committees or conservators of incompetent persons, and trustees under will or deed. These are usually long-term bonds, but they may become short-term if the minor comes of age, the incompetent dies, or the trust terminates within a year or two.
These are examples of fiduciaries whose duties fall in the short-term category.
This fiduciary is appointed when temporarily administering an estate is required, pending probate of a will or appointing a general administrator.
This fiduciary is subordinate to the general administrator and is appointed to collect assets in a state other than the deceased's legal domicile at the time of death.
Administrator to Collect
This fiduciary is appointed to collect and preserve goods likely to be lost if regular probate or administrative proceedings cannot commence immediately for any reason.
Administrator Cum Testamento Annexo (with will attached)
This fiduciary is appointed in cases where the deceased made a will but either did not name an executor or named one who was unwilling or unable to serve.
Administrator de Bonis Non (of goods not already administered)
This fiduciary is appointed to complete the administration if the office of administrator becomes vacant before the estate is settled.
Administrator de Bonis, Cum Testamento Annexo
This fiduciary is appointed to complete the duties of an executor or administrator who dies or fails to close the estate for any reason.
Administrator to Sell Real Estate
This fiduciary is appointed to sell real estate to pay the estate's debts.
Administrator Pendente Lite
This fiduciary is appointed to handle the estate during periods of litigation.
Survivor of Partnership
Every partnership is dissolved when one of the partners dies unless there is an express agreement or contract to the contrary. The surviving partner is responsible for winding up the partnership promptly, to collect all funds owed to the partnership, and to also act as a fiduciary. In some states, the survivor is required to give bond that guarantees its faithful performance of these duties.
Receivers in Equity Proceedings
The courts appoint Receivers in Equity to take possession and control of property that is the subject of litigation and to dispose of it as the court directs.
Receivers in Bankruptcy-Liquidation
Receivers in bankruptcy liquidation collect the assets of the bankrupt estate and hold them until a trustee in bankruptcy is elected. They do not make any distributions to creditors. This receiver turns over all assets to the trustee elected.
Assignee for the Benefit of Creditors
This type of bond is needed when a debtor cannot pay its creditors. Based on an arrangement with its creditors, the debtor may convey all of its property to a third party or assignee, whose duty is to immediately convert the property into money and to then pay the debts to the extent possible.
Long-term bonds are for fiduciaries whose duties are expected to extend over longer periods of time. Their appointment includes not only collecting and disbursing assets but also conserving and investing them. The investment aspect makes them long-term. Examples of fiduciaries whose duties fall in the long-term category include:
Guardians, Curators and Tutors of Minors
These fiduciaries care for and manage the estate of a minor, invest the estate funds in such securities as allowed by law, make reasonable expenditures for the minor's education, support, and maintenance (preferably under a court order), and file accounts with the court.
Guardians, Committees, Curators and Conservators of Incompetent Persons
The names in this category vary but their duties and responsibilities are basically the same as in the category above.
These fiduciaries are named in the deceased's will to preserve and manage the trust estate as the will's provisions require.
If the testamentary trustee dies, resigns, or fails to act for any reason, the law does not permit the trust to fail for lack of a trustee. In these cases, the court appoints a trustee to administer the trust under the will's provisions.
Trustee under Deed to Create an Income
Bonds that cover this type of fiduciary usually do not come directly under the court's jurisdiction. This is because the trust was created during the individual's lifetime and is a completely private arrangement. Court action is not needed unless there are questions of interpretation or proper administration.
When underwriting a fiduciary bond, the surety focuses on the following issues:
•The nature of the obligation the fiduciary is to assume
•The fiduciary's qualifications
•Safeguards that may be imposed
•The length of time the bond is expected to run
The surety underwriter must evaluate the principal, attorney, and the estate involved when considering a request for a Fiduciary bond.
The applicant or principal's integrity and its business capacity and financial worth are considered. Any questions about the applicant's honesty will result in a declination. The importance of business capacity is directly proportional to the amount of assets to be handled and the scope of duties to be performed. For example, a person with limited business capacity can satisfactorily administer a simple estate but a lawyer, banker, accountant, or extremely successful businessperson should be capable of handling a larger or more complicated estate. Successful professionals accustomed to dealing with large sums of money and investments are usually competent, dependable, and less inclined to be tempted by a large amount of money or extensive assets. On the other hand, joint control may be required to obtain a bond if any of these considerations is in question.
The qualifications of the principal's attorney must also be considered. Handling an estate may involve legal issues and technicalities that require a capable lawyer's services. A risk is more desirable when a highly competent attorney closely supervises its administration.
The circumstances and conditions of the estate itself must be examined thoroughly and understood completely. Whether the exposure is short term or long term, the nature of the assets and liabilities, the number of heirs or beneficiaries (and where they are located), whether trusts have been created under a will, and the date of death or the date that ward status was created are important considerations. If trusts were created, the surety must know if they will be conducted under its bond or if their liability will be terminated with respect to them. If the date of death or creation of ward status was not recent, the surety must know where the assets are located and the party or parties that have custody of them.
An attorney-in-fact for the insurance company is the only person who may place a Fiduciary bond in force. The risks involved in underwriting such coverage require experience and specialized knowledge. Underwriting authority is usually limited to the bonding company's underwriters but may be delegated to selected agents up to certain limits or amounts.
Fiduciary bonds are always subject to a completed application. It does not necessarily have to be completed in advance when the attorney-in-fact is present at the court or another place where the bond is filed. In other cases, the application is submitted to the surety to issue the bond. The information provided in the application must be accurate and the person being bonded must sign it.
A properly completed application sometimes reveals unusual or important information that requires additional consideration. For example:
•Is the bond applicant directly or indirectly indebted to the estate in question?
•Date of appointment to any applicable trust
•Is the application for a first bond? If not, why is substitution necessary?
•Are any assets involved in whole or in part with running a business?
The bonding company may require joint control agreements as a condition precedent to (before) issuing the bond. Widows and widowers may find themselves in a fiduciary capacity and not have the business experience needed to do the job. The surety may require joint control in those cases. All cash and securities must be deposited in a specific bank or trust company. Only checks the surety on the account signs are honored. If the estate involves securities, the surety may require that the bank sign a safe deposit box joint control agreement where the surety must accompany the bonded party to gain access to the safe deposit box.
Joint control agreements provide safeguards that are advantageous to an inexperienced fiduciary. The surety ensures that the assets are handled properly and helps the fiduciary perform its legal obligations. Joint control makes it possible to bond otherwise unacceptable risks. Guardianships that involve surviving parents and minor children almost always require joint control because the child’s share might become unidentifiable from the parent’s share. Sureties frequently assist fiduciaries to discharge their obligations according to statutes and court orders. This is usually in the form of joint control of the estate's assets.
Joint control is an arrangement where the fiduciary and surety control the estate's assets. It also requires that all checks be signed by the fiduciary and countersigned by the surety through its authorized representative. Joint control is a written arrangement that both the fiduciary and the surety consent to and the depository bank that holds the estate's assets acknowledges. Both the fiduciary and the surety must be present to gain access to the safe deposit box that contains the estate's securities.
Joint control is not a reflection of the fiduciary's integrity. On the other hand, it cannot guarantee that dishonesty will not occur. However, it is the safest and fairest way to execute many of these bonds. It provides reasonable assurance that the fiduciary will perform its duties according to applicable laws and statutes. In addition, the records that must be maintained as a result of joint control may be extremely helpful in the final settlement of the fiduciary's account.
Fiduciary bonds cover faithful performance of duties. They are written for the period needed to administer the trust. They do not have a cancellation clause. Many states do not have a statutory provision to release or discharge a Fiduciary bond until the administration has fully run its course and an accounting is provided.
The fiduciary does not have to actively mismanage or commit fraud in order for a bond to be forfeited. Negligently doing nothing may also be a valid cause of forfeiture. Misfeasance, malfeasance, and nonfeasance impose equally serious responsibilities on the fiduciary. The fiduciary's failure to act when action is necessary may place the surety in an embarrassing position.
If the fiduciary deposits funds directly into its personal account, it becomes an absolute guarantor of the funds. The surety would be forced to pay if the fiduciary dies, declares bankruptcy, or becomes indebted. This is why it is necessary to segregate an estate's funds. The Fiduciary bond is not intended to cover a depository hazard. All that a surety proposes to do (and all it is required to do by its issuing a Fiduciary bond) is to warrant that the trust will be administered honestly and faithfully according to the laws of the applicable jurisdiction.
On all Fiduciary bonds, the initial premium is fully earned when any of the following occur:
•The trust is completed
•The estate is closed or withdrawn from the court's control or custody
•The trust is finally wound up by distributions to the beneficiaries or creditors
•It is finally discharged by the fiduciary in any other way
If the bond is cancelled within the first year, the premium is fully earned and there is no refund. If a Court Fiduciary bond is canceled in any subsequent year, a pro rata refund of unearned premium may apply for the unexpired portion of the given bond year.
Bonds in probate and other courts are rated per $1,000 on an annual basis. Examples are bonds in estates of deceased persons, bonds in estates of minors, bonds in trust estates, and bonds in estates of incompetents.
Bonds in equity courts are subject to a different rating classification, based on the risk. Bonds that apply to masters, referees, trustees, or commissioners for the sale of real estate or other property (in partition, foreclosure, reorganization, or winding-up proceedings) carry an annual rate per $1,000 when the applicant's duties do not require investment of assets or any duties other than the sale and distribution of proceeds. Because there is a slightly higher risk, bonds for fiduciaries appointed by a court to manage or liquidate property or a business are charged a slightly higher rate, also per $1,000. The rates for bonds for assignees, liquidators, trustees, or others appointed for the benefit of creditors by an insolvent debtor to liquidate the debtor's assets and make distribution to creditors carry a substantially higher rate per $1,000 on the bond penalty amount. This is because the risk under these bonds can be significant.
Bonds in bankruptcy courts for agents, appraisers, creditor committees, custodians, examiners, petitioning creditors, and stockholders' committees or their agents are charged at a similar rate per $1,000 per year. However, when bonds are required for receivers or trustees appointed solely to arrange assets, liquidate, and distribute to creditors, their costs are much lower.
Executors and administrators are similar except that the executor, named in the will as such, distributes in accordance with the terms of the will while the administrator is appointed by the court in the absence of a named executor, in accordance with the statutes. Should an administrator, or other fiduciary, negligently fail to reduce to possession property belonging to the estate and as a result the estate should suffer a loss, he would be responsible for such loss to the same extent as if he had reduced the property to possession and misappropriated it.
The duties of the executor or administrator in the administration of an estate are substantially as follows, although not all are applicable in every detail: First, he must take possession of the decedent's estate, personal and real, and collect the debts due the estate. He must give notice by publication, as prescribed by law, warning those having claims against the estate to present them. He must file an inventory of the estate assets, take care of immediate post-funeral expenses, pay the decedent's just debts, including income, personal property and inheritance taxes, file an account with the court showing receipts, disbursements and balance on hand, make proper distribution of the estate, and finally present to the court suitable evidence of distribution, and ask for his and the surety's discharge.
Trustees derive their authority from the instruments under which the trusts are created. The general duties of a trustee, whether under a will or a deed, are about the same as those of other fiduciaries so far as the safe-keeping and segregation of assets are concerned. One of the most important duties of a trustee, however, is the investment and reinvestment of trust funds. For his protection and the protection of the estate, the trustee must rigidly observe the terms of the trust instrument. Where there is doubt as to its meaning, court orders should be obtained before responsibility is incurred. If the instrument creating the trust does not specify the character of securities in which an estate may be invested, the trustee should look to the statutes for the purpose of determining the character of securities in which he may safely invest.
Guardians, committees, tutors, curators, conservators and other trusts of a comparable scope, whether the ward is an infant or an incompetent, are trustees of a sort. The same investment problem confronts guardians as confronts trustees.
A guardian generally is held to a more strict accountability than is the average trustee for the reason that governing bodies are careful with regard to infants and unfortunates. Generally, securities approved for investment by trustees are acceptable as investments by guardians. A guardian should invest in approved securities only, and if the statutes are silent on investments, court orders should first be obtained.
Receivers in bankruptcy are appointed following the petition of creditors of alleged bankrupts. The term of a receiver's office is not long. He takes possession and preserves the assets of the bankrupt until a meeting of creditors is called. A trustee is elected at that time. The trustee is under the direct supervision and guidance of the referee in bankruptcy. The referee in bankruptcy is an officer of the court and supervises the trust to the extent of countersigning checks drawn by the trustee.
Sellers of real estate may be special commissioners, trustees or attorneys. The terms of such offices are relatively short. After making the sale, the trustee or commissioner accounts for the proceeds. Real estate bonds for guardians, trustees, administrators or executors are different in that the proceeds from the sale become part of the trust and must be administered accordingly. Bonds for such fiduciaries continue until the expiration of the trust.
The bond to cover a fiduciary is one to cover faithful performance of duties. It is written for an indefinite period, for such period as is required to administer and account for the trust. Such bonds do not contain cancellation clauses. In many states there is no statutory provision for the release or discharge of a Fiduciary bond until the administration has fully run its course and the proceeds have been accounted for.
It is not necessary that the fiduciary actively mismanage or commit fraud in order that the bond be forfeited. Negligently doing nothing may be valid cause. Misfeasance, malfeasance and nonfeasance impose equally serious responsibility on the fiduciary. Failure to take affirmative action where action is necessary on the part of the fiduciary may place the surety in an embarrassing position.
Should the fiduciary deposit funds in his personal account he becomes an absolute guarantor of the funds. The surety would be forced to pay if he should die, go into bankruptcy or acquire large debts. It is necessary to segregate the funds of an estate. It is not intended that a depository hazard be covered by a Fiduciary bond. All that a surety company proposes to do and all that it is required to do through the issuance of a Fiduciary bond is to warrant the honesty and the faithful administration of the trust in accordance with the laws of the jurisdiction.
Estate bonds are often needed in a hurry and their handling can be expedited by an agent by inquiring if: There is an active business in the estate; the principal is indebted to the estate; the principal had prior custody of the estate's assets ; the principal is a successor fiduciary. Otherwise, the underwriter will need the name and address of the principal and attorney and Bond particulars, such as penalty and county of filing.
When underwriting a bond for a fiduciary, the surety relies upon certain rather fixed principles, with the following generally given emphasis: The nature of the obligation to be assumed by the fiduciary; his qualifications; safeguards that may be imposed, and length of time his bond is likely to run.
Three important factors must be examined by the underwriter for the Bonding company in passing on the desirability of any Fiduciary bond: The principal, the attorney and the estate.
The integrity of the applicant (the principal), his business capacity and his financial worth are considered. If there is any doubt about his honesty, declination is certain. The importance of business capacity is relative to the amount of assets to be handled and the character of the duties to be performed. A person of limited business capacity can satisfactorily administer a simple estate. A lawyer, banker, accountant or especially successful business man should handle a complicated estate. A person with a good position and accumulated means is logically accustomed to handling large sums of money and investments. He is less likely to yield to temptation and is likely to have the ability to successfully carry out his duties. Joint control may be the only means by which a bond is obtainable when these considerations are not entirely favorable.
The calibre of the principal's attorney must be taken into account. The handling of an estate may involve legal technicalities requiring the services of an especially able lawyer. A risk is likely to be desirable when it is administered under the close supervision of an outstanding attorney.
The circumstances and conditions of the estate itself must be fully considered. Whether the risk is of a long or short term nature, the nature of the assets and the liabilities, the number of the heirs or beneficiaries and their whereabouts, whether trusts have been created under a will, and the date of death or creation of ward status are important considerations. If trusts were created, the Surety will want to know if they will be conducted under its bond or if its liability will be terminated with respect to them. If date of death or creation of ward status was not recent, the Surety will want to know where the assets have been and who has had custody of them to date.
USE OF APPLICATION
An attorney-in-tact for the insurance company is the only person who may place a Fiduciary bond in force. The risks involved in underwriting such coverage are so great that skilled, specialized knowledge is required. Such authority is usually confined to bond underwriters of the company, but is sometimes delegated to selected agents up to specified limits of liability. Bonds greater than the authorized limit must be referred to the company.
A completed application is almost always required in connection with a Fiduciary bond. When the attorney-in-fact is present at the court house or other place where the bond is filed, the application often need not be completed previously. Otherwise, the application is submitted to the branch or service office of the company for a bond to be issued. The facts in the application must be accurate and it must be signed by the person to be bonded.
Answers to questions in the application sometimes reveal hazardous elements that warrant special consideration. The following questions are studied carefully and have a bearing on the acceptability of a bond: Whether or not the applicant or any organization in which he is interested is indebted to or is security for any indebtedness to the estate; date of appointment to the trust; whether application is for a first bond, and if the bond takes the place of another bond, why substitution is necessary; if assets consist in whole or in part of a running business.
Joint control agreements are sometimes required by the company as a condition precedent to the issuing of a bond. Widows often find themselves in a fiduciary capacity without having had the business experience necessary to accomplish the job. The surety then asks for joint control. All cash and securities must be deposited in a specified bank or trust company. No checks will be honored on the account unless countersigned by the surety. When there are securities in connection with the estate, the surety will require the bank to sign a safe deposit box joint control agreement. Then the bank will not permit the party bonded to have access to the box except in the presence of the surety.
A joint control agreement provides safeguards that are a great advantage to an inexperienced fiduciary. The company makes certain that the assets are properly handled and helps the fiduciary in his legal obligations. Joint control makes possible the acceptance of risks that would otherwise be unacceptable. Guardianships involving mothers and minor children almost always require joint control. Otherwise the child's share might become unidentifiable from the mother's share.
SHORT AND LONG-TERM
There are two classes of short-term and long-term Fiduciary bonds which can be briefly catalogued in accordance with the functions and duties of the fiduciaries, as follows:
1. Where the fiduciary's duties are to collect the assets of the decedent, pay the debts and distribute the remainder according to law. Within this class are executors, administrators, and receivers and trustees in bankruptcy. These usually are short-term bonds.
2. Where the fiduciary's duties are to preserve the assets and invest them, and to disburse or accumulate the income. Such fiduciaries are guardians of minors, guardians, committees or conservators of incompetents, and trustees under will or deed. These usually are long-term bonds, although they may become short-term if within a year or two the minor becomes of age, the incompetent dies, or the trust terminates.
RATE AND PREMIUM
On all court Fiduciary bonds, the initial premium is fully earned if the trust is completed, the estate closed or withdrawn from control or custody of the court, wound up by distribution to the beneficiaries or creditors, or by final discharge of the fiduciary in any other manner. If the bond is canceled within the first year, the premium has been fully earned and no refund is to be made. If a court Fiduciary bond is canceled in its second or any subsequent year, pro rata refund of unearned premium may be made for the unexpired portion of the bond year in which cancellation occurs, subject to a reasonable earned premium.
Bonds in probate and other courts include: Bonds in estates of deceased persons; bonds in estates of minors; bonds in trust estates; and bonds in estates of incompetents. In general, premiums for such bonds, unless otherwise specified, are rated per thousand on an annual basis.
Bonds in equity courts are another classification for rating purposes. Bonds applicable to masters, referees, trustees or commissioners for the sale of real estate, or other property, in partition, foreclosure, reorganization or winding up proceedings carry an annual rate per thousand when the applicant's duties do not require investment of assets or any duties other than the sale and distribution of proceeds. Bonds for fiduciaries appointed by a court to manage or liquidate property or a business are charged for at a slightly higher rate pr thousand. Bonds for assignees, liquidators, trustees or others appointed for benefit of creditors by an insolvent debtor to liquidate the debtor's assets and make distribution to creditors carry a substantially higher rate per thousand on the penalty of the bond.
Bonds in bankruptcy courts for agents, appraisers, creditors' committees, custodians, examiners, petitioning creditors and stockholders' committees or their agents are charged at a similar rate per thousand per annum. When bonds are required for receivers or trustees appointed solely to marshal assets, liquidate and distribute to creditors, their cost is substantially lower.
Miscellaneous bonds are provided for in a special rating section of the manual. They are not required often. Rates for liquidators of financial institutions, insurance companies or savings and building and loan associations, for refunding bonds, open estate bonds and those guaranteeing the payment of inheritance taxes, and for life tenants' bonds are quoted per thousand per annum on the penalty of the bond.