Nixon & Lindstrom Insurance

Why a FIDUCIARY bond is Needed and the Parties Involved
WHY SOMEONE HAS BEEN APPOINTED TO HANDLE THE AFFAIRS OF ANOTHER SO	PARTIES PRINCIPAL
WE GUARANTEE THAT HE WILL	SURETY
PERFORM HIS DUTIES HONESTLY, COMPETENTLY, AND FAITHFULLY	STATUTORY OBLIGATION
FOR THE GOVERNMENTAL UNIT (THE COURT) REQUIRING THE BOND FORM THE PRINCIPAL AND	OBLIGEE
"3RD PARTIES" (BENEFICIARIES AND CREDITORS) ARE PROTECTED BY A FIDUCIARY BOND	3RD PARTIES

Legislative bodies have required (or permitted) our various courts to use surety bonds as a means of protecting various persons or firms who come within the court's jurisdiction.

1) When someone dies, their property, assets and liabilities must be determined, guarded and distributed to the heirs and /or creditors. This must be done as required by the law or will.

2) A living minor or adult may be incapable of properly handling his property or affairs.

3) A person or firm's financial affairs may be in poor shape and require the attention of a court, to properly protect the creditors, interested parties, etc...

A Fiduciary bond is usually required in each of the cases described. A fiduciary is a person handling the affairs of another. He or she must do so honestly, competently and faithfully. If he or she does not do so and causes financial loss to the heirs, creditors, etc., the bond will guarantee that they are reimbursed.

Another kind of Judicial bond is the Court bond. This is a general term that includes many kinds, for instance:

1) After a lawsuit has been tried the loser may choose to appeal the decision to a higher court. To do so, he may be required to post an Appeal bond to protect the opposing party.

2) Or, perhaps a suit is filed over ownership of some property and the property has been attached or seized, The person in possession, may have to file a Surety bond pending the final judgment of the court.

This discussion will be limited to the Fiduciary type of Judicial bond. The Court type of Judicial bond will be covered separately.

Fiduciary bonds are the most desirable of all Judicial bonds. First, there usually is no controversy involved. Second, it is often a matter of handling the estate or affairs of another for only a short time. Third, the close scrutiny of the heirs and the court, in appointing a competent fiduciary, tends to make Fiduciary bonds work out more satisfactorily.

Sometimes a Fiduciary bond will involve a very young minor and will require handling his affairs for many years (until he or she is 21). Or, the same long term handling might be true of an incompetent adult. It might involve the fiduciary needing to operate a going business with which he is not too familiar. These latter cases are less desirable and are very carefully underwritten, if written at all. Likewise, surety companies will not bond a fiduciary who does not employ a competent attorney to advise him throughout the term of his office. Moreover, they are most reluctant to bond a fiduciary who is deeply in dept to the estate he is to handle.

Sometimes a fiduciary will need several bonds for the same estate. The first one covers the liquid assets available when he is first appointed. The subsequent bond(s) will cover additional liquid assets coming into the estate from the sale of real or personal property. Obviously, all such bonds must be in the same.

In some cases, the surety, company will insist on "joint control" with the fiduciary. This not only gives us and the heirs added protection but also reduces the chance of the fiduciary making a costly mistake that will make him personally responsible. Joint control does not entail a lot of additional red tape for anyone.

The following are the more common kinds of fiduciaries. In some states these titles may vary, but their purpose and duties are the same.

Fiduciary bonds (and all other Judicial bonds) often come from attorneys. Here are common situations that require the attorney's client (the principal) to be bonded:

1) After the death of someone who left property, the heirs contact an attorney to obtain his assistance in getting possession of the inheritance. While interviewing the heirs the attorney will make notes as to approximately how much is involved, who is supposed to get what, and who the heirs want to handle the "winding-up" of the estate. The attorney is likely to say, "I will draw up a petition asking the Probate Court to appoint son "John" as Administrator and whom you all agree should handle things." He is also likely to say, "I'll arrange for his (son John's) bond." The attorney knowledge of the estate, the Court and the law enables him to know about how large a bond is needed. The attorney gets the routine details (petitions, bonds, etc.) completed and goes into Probate Court for approval of these actions.

2) A similar need for a Fiduciary bond arises when the family or friends of a minor or incompetent adult approach an attorney and recite a tale of woe about this unfortunate party needing someone to handle his affairs. Much the same routine is followed to appoint a guardian and bond him.

3) A creditor or group of creditors see an attorney because they fear they won't be paid by someone whose financial condition is "shakey". Certain legal maneuvering may enable the creditors to get a receiver appointed to handle things for the debtor and thus protect the creditors. The Receiver's bond will protect the creditors.