Succession planning involves accounting for the worst-case scenario. Without accounting for these risks, your plan could fail, require expensive litigation or jeopardize the family farm.
One of those risks is far-fetched, but a question we receive from time to time. What if your executor or trustee decides to run off to the Caribbean with all your assets, leaving heirs with nothing? Pretty wild idea, right?
This type of problem has not come across our practice. However, safeguards still need to be in place to protect the heirs of an estate.
The most common tool to protect against the “run-off-to-the-Caribbean” scenario is a fiduciary bond. An executor, trustee or guardian would obtain a bond early in a probate case and file it with the court. The bond would remain in place while the fiduciary is serving his or her role. If the fiduciary absconds with estate assets, the bond is there to help the beneficiaries of the estate, trust or guardianship.
Ohio Revised Code Section 2109.04 governs fiduciary bonds. This expense would be handled by the fiduciary, who would need to find a bond company willing to issue that instrument. The bond amount is tied to the value of personal property such as financial accounts, vehicles and personal effects.
Do you need a bond?
Looking at different types of assets, do you need a bond to cover the value of land? Not really. The primary difference is that land cannot be picked up easily and moved, making a bond superfluous.
Furthermore, it is very difficult to transfer land without extensive safeguards. In some cases, court permission is needed for a transfer. To sell a farm, a title company or opposing attorney might raise suspicion. Not to mention, real estate-related actions are often public record. In some cases, a court action can correct issues or order damages.
Is it possible to waive the requirement of a bond? Yes. In fact, this is a default setting for bonds with estates, trusts or guardianships. Most estate planning documents waive the bond requirement since family members often serve as fiduciaries.
State law also describes several instances where a bond is not required. However, if a party motions the court and the judge believes there is good cause for a bond, one can be required for a fiduciary.
Although a bond can provide some important protections for heirs, the likelihood of a fiduciary running off with assets is impressively low. As a result, most administrations view the bond as an unnecessary step and expense.
However, if a family is concerned about the trustworthiness of a fiduciary, the bond requirement should be reinstated. If an administration is pending, the family can petition the court to require a bond.
Consult with an attorney to determine the role of bonds for your estate plan.