The estate requirements for a probate court vary from state to state, but most states require a surety bond. Why is this? Simply put, a probate bond protects the interest of the heirs and creditors who are waiting for their money to be released after it passes through probate. If you've never had one before, here's an overview of what you need to know about corporate surety bonds.
What Is A Probate Surety Bond?
A probate bond is basically an agreement between three parties: the principal (also called the obligee), which is your company; the corporate surety that agrees to provide financial backing for your obligations; and lastly, the beneficiary or person requesting the bond. As with any contract, the three parties must mutually agree to the terms, and if one party breaks this agreement, the other two may have the right to sue.
The most important thing here is that you don't want to break any of these rules because the corporate surety can terminate your bond without any prior notice. If your bond is terminated for whatever reason, it is very difficult to get another one in most states. Generally speaking, a probate bond protects heirs from financial loss due to mishandling or misappropriation of funds during the administration period.
A surety is basically a form of insurance. When you purchase a surety bond, the corporate surety will agree to pay out for any claims that are made against your business in accordance with the terms and conditions of the contract.
What we mean by this is that if there is any loss or damage as a result of your failure to abide by the rules which were explained during contract negotiation, then the corporate surety will cover those costs up to what was stated in your bond agreement.
So what happens after probate?
After probate, it's generally advised that you've left behind enough money so that all creditors have been paid off and all outstanding debts/obligations have been fulfilled before closing down your company's operations. Why? Well, think about it this way: if you don't have enough money to cover your debts, creditors can still come after your company even though it has been legally closed. Once probate is completed and all debts are paid off, then you close down the business and enjoy the peace of mind that everything has been settled according to law.
A surety is a third party that agrees to ensure that the terms of a contract will be met. In other words, if there is a breach in your contract by either you or the beneficiary, the corporate surety can be called upon to make whatever financial changes are needed. For example, if you don't do what's required under your bond agreement or if you misappropriate funds as executor or administrator of an estate, then the corporate surety may have to pay instead.
The cost of a surety bond for probate is based on the amount, type, and complexity of your business operations. For example, if your business operates in multiple states across the country then this will increase the risk to the corporate surety and will increase the premium accordingly. Not only that but if you're dealing with large amounts of money or significant transactions involving other companies or people, particularly those you don't know very well, then again there's an increased risk and therefore your bond may cost more as a result.
Corporate surety bonds can range from $500 (simple/small) all the way up to several million dollars (complex/large). On average though they tend to be around10k-$20k depending on the amount of money you're handling and the risks involved.
A surety guarantee is similar to a corporate surety bond except that it's not backed by the full faith and credit of the corporate surety. This might be an option if you can't afford or don't want to pay for a traditional bond but still need some form of financial protection. The downside here is that they are generally very limited in size, time, scope or some other restriction which means they won't provide you with the same level of coverage as a normal bond would offer - so it's best to find out exactly what your options are before making any major decisions.
A corporate surety bond is not the same thing as a corporate surety guarantee. A Surety Guarantee is sometimes called by another similar name which is "Performance Bond". The main difference between these two terms can be found in their legal definition. Although both bonds are usually used for the same purposes, they serve different functions in the eyes of the law.
A surety guarantee is basically the same thing as a corporate surety bond, but it's issued for a shorter period of time. In most cases, you'll find that this is one year or less.
A surety bond functions as insurance for your business. It's basically a financial safeguard that protects you or the estate of someone who passed away from any financial loss under certain conditions. For example, if you're serving as an executor of an estate then you are legally bound to make the necessary decisions regarding the management of assets and property during probate.
You will also be entrusted with making sure that everyone involved in this process is paid out correctly - including creditors, beneficiaries, heirs, etc... If something goes wrong though, say one of these people tries to file a claim against you or your company because they believe they aren't getting their due share or that some error was made on your part, then it's the corporate surety who will help you fight off or resolve any claim that's made against you.
A corporate surety bond works by shifting the risk of wrongdoing from your business to the corporate surety. This essentially means that if you breach the terms of your contract, then it will be up to the corporate surety to decide whether or not they want to pay out on any claims brought against you.
If they do end up paying - either in full or in part - then this amount may need to be taken out of your future earnings or assets (depending on what was agreed upon). So don't think that just because you have a surety bond for probate in place, everything will automatically go smoothly. You still have to abide by the law, rules, and regulations - otherwise, you may be looking at a future claim against you.