How an Administration Bond Works

A probate court usually appoints an administrator to care for the interests of a person who died without leaving a valid will or who left a will without appointing an executor. Often, a probate court might appoint an administrator to oversee the estate of a deceased person if the principal executor declines to serve, is removed from the role, or dies. As soon as the court receives an administration bond, it immediately empowers the administrator to carry out specific functions; these include the remittance of outstanding tax liabilities to governmental authorities, paying creditor's bills, and distributing the deceased's assets to duly entitled beneficiaries.

The administration bond is a powerful instrument that the court uses to ensure the appointed administrator does not mismanage the deceased's estate for personal benefit. As a practice, the administrator obtains the administration bond from a surety company; before issuing the bond, the surety carries out a thorough background and credit check on the applicant's merits. In a situation where the court determines that the appointed agent deviated from the deceased's wishes or otherwise acted in a manner that is inconsistent with the requirements of the law, the aggrieved party may file a claim in court against the existing administration bond.

If the court determines that the claim is valid, it can order the surety company to compensate the aggrieved individuals. The court would order the administrator to repay the surety for the funds already disbursed to the claimants. Moreover, in a situation where the administrator either defaults or declares bankruptcy, the court might declare the surety responsible for duly compensating the project owner to cover his financial losses. While the probate court will not always demand an administration bond, the total amount of the bond is typically based on the estate's total value.

Example of an Administration Bond

Claude Smith Sr - whose estate's value was around $500,000- died in 1999 at the age of 65 years. Unfortunately, Smith died intestate- this means he did not leave a will or an executor to manage his estate's affairs. Smith had five children- including Claude Jr- the five could not agree on how they would administer the estate without a valid will. In light of this, Claude Jnr decided to pursue legal recourse through the probate court.

Claude Jr filed an affidavit petitioning the court to appoint an administrator to manage his father's estate. The affidavit contained the case's essential elements, including the beneficiaries' identities, signed consents to the waiver, the deceased's last occupation and value of the secondary beneficiaries' interest, proof of the estate's outstanding debts, and the present employment and occupation of the estate beneficiaries. In considering the petition, the court considered that the estate's total value must determine the total bond amount (regarding the estate). The judge also determined that, since Claude Jr's father died intestate and, therefore, there was no will, it was necessary to appoint a legal agent who must have an administration bond- ultimately, the premium charged on the bond would be based on the administrator's credit.

In his ruling, the judge appointed an administrator for the Smith estate- the administrator deposited the administration bond received from his insurer (the insurer sent a document to the court, certifying that the agent qualified to assume the administrator's role). Having affirmed the admiration bond's authenticity, the judge declared the administrator duly appointed to take over his assigned responsibilities. Claude Jr found this process took several weeks to dispense (besides the time needed to fulfill the probate process). Although there was some delay in executing the matter, Claude Jr was happy the legal procedures required to secure the integrity of the division of his father's estate would guarantee justice to all the parties in dispute.

Significance of an Administration Bond

The administration bond protects both the beneficiaries and creditors in equal measure; the bond protects them from the damages caused by the appointed agent's negligence, fraud, or erroneous acts. In addition, the bond provides a legal guarantee that the appointed agent will handle the affairs of a dead person's estate ethically and legally; it ensures the administrator will distribute the assets precisely according to the deceased's wishes. Further, the administration bond is a security instrument that insulates the estate's beneficiaries against incurring financial losses when the administrator engages in unlawful practices like stealing or deliberate negligence.

The bond also protects the appointed administrator in situations where the beneficiaries file a false claim purporting that the former failed to perform their duties according to the deceased's will (or the requirements of the law). Once the court determines that the claimant's petition is baseless, the court might issue an order for the administration bond to be refunded to the administrator. Ultimately, the bond generally ensures all the parties with interest in the estate- including the beneficiaries and creditors- are fairly treated.