Anyone who has had dealt with probate court (or any court) knows that the rules can be confusing. One common question is, “What is a bond, and when is a bond required in Illinois probate court?”
What Is a Bond?
A bond is similar to insurance. If a specified event occurs the issuer of the bond (often a surety company) agrees to pay a certain amount of money to a certain person in accordance with the contract. In the context of probate, the triggering event is usually a mistake or malfeasance by the estate representative and the trigger obligates the surety company to pay money to those harmed.
Like insurance, the issuer of a bond typically charges a premium based on the type of risk it is insures and the amount of money it has agreed to pay if the triggering event happens. The higher the risk and and payout are, the higher the premium will be.
Why Does the Law Require a Bond?
The Illinois probate process involves appointing an estate representative that has many duties; these duties include collecting all of the decedent’s assets, managing the estate, paying proper debts, and distributing remaining assets to the appropriate people. Throughout the process, there are opportunities for the representative to make mistakes, such as paying creditors in the wrong order or not paying proper debts before distributing assets to heirs. In addition to making mistakes, there is also the opportunity for the representative to steal money from the estate that he or she was entrusted to manage.
To protect creditors, heirs, and legatees from representative negligence or outright theft, Illinois law requires most representatives to obtain a bond that can be used to compensate those rightfully entitled to funds if the representative mishandles the estate assets.
Situations Where No Bond Is Required
Generally, there are three situations where no bond is required in probate:
- When formal probate is not required;
- When a will waives the bond requirement; and
- When the estate’s representative is a corporate representative
Formal Probate Is Not Required
Formal probate is not required in all cases. If an estate is relatively modest (less than $100,000.00 in probate assets) and the estate does not hold real estate, probate may be avoided so long as no disputes are expected. The most useful tool in avoiding probate post-death is the Illinois Small Estate Affidavit. If you believe the estate is eligible, you can review my full article on the topic, “When is Probate Required in Illinois?” If the Small Estate Affidavit can be used, a bond is not necessary.
The Will Waives Bond
There are many reasons to make a will. The most obvious is for the testator (person who makes a will) to distribute property in accordance with his or her wishes. Another important consideration is to waive the bond requirement if the testator thinks it is wise. In most estates, the person named as executor is a person the testator trusts implicitly, so the testator may not think a bond is necessary. Additionally, bonds can be quite expensive, and the testator might think that it is a waste of money to pay for a bond. Most wills waive the bond requirement.
When the Estate Is Represented by a Corporation
Not all estates are represented by an individual representative. The Illinois Corporate Fiduciary Act (205 ILCS 620) permits certain entities to act as the representative of an estate. Corporate representatives are more common in very large or complex estates, but they are also sometimes used in estates where the decedent had few relatives or a lot of disagreement among heirs and legatees is expected. A corporate representative may also be used as a last resort when the primary and successor representatives are unable or unwilling to serve.
Most bonds are waived when a qualified corporate representative is used due to the many requirements put on a corporate representative under the Corporate Fiduciary Act; bonds are also waived because the people working for the corporate representative are professionals.
How Large of a Bond Is Required?
The Illinois Probate Act specifies the size of the bond that an estate’s representative must purchase. The statutory standards can be found at 755 ILCS 5/12-5 and are as follows:
Individual Surety: If an individual (rather than a surety company) issues the bond, it shall be at least two times the value of the personal estate (all property other than real estate).
Surety Company: If a surety company issues the bond, it shall be at least 1.5 times the value of the personal estate.
In either case, the bond may be increased if the representative takes possession of the decedent’s real estate (especially if the real estate produces income).
In cases where a wrongful death or personal injury lawsuit is an asset, the value of the lawsuit is considered $500.00. However, if a sum of money is to come into the representative’s possession as a result of the lawsuit, the representative must obtain a bond in the amount of either 1.5 or 2 times the amount of the funds as discussed above.
How Much Does a Probate Bond Cost in Illinois?
The cost (premium) of a probate bond varies based on many factors including the following:
- Representative’s creditworthiness;
- Whether the estate has a lawyer;
- Size of the estate;
- Type of assets in the estate;
- Whether there is fighting among heirs/legatees;
- Whether the representative owes the estate money;
- Whether the estate owns an ongoing busines;
- Representative’s relationship to the deceased; and
- Representative’s profession.
The cost of a bond is highly variable, but in general, one should expect to pay an annual premium of around $500.00 per $100,000.00 in estate assets. However, the ratio of bond cost to estate size is not completely linear. All other factors remaining equal, the cost of the bond for a smaller estate will equal a larger percentage of estate assets; for larger estates, it will equal a lower percentage of estate assets.
The requirement of a bond is often a key factor that makes a lawyer necessary for probate. Since the Illinois probate process is complicated and includes a high likelihood of mistakes, surety companies are reluctant to issue bonds to representatives who intend to administer an estate without legal guidance due to high liability.
Conclusion
A probate bond is required in most probate estates in Illinois, except for those where the will specifies that no bond is required. The yearly cost of a bond tends to be about 0.5% of the estate’s assets, though there are many factors that can increase or decrease the amount charged by a bonding company.
Though all estates should have a lawyer since probate is complicated, this is especially true when a bond is required. When deciding the price of a bond (and whether to issue one at all), a bonding company will take into strong consideration whether or not the estate has legal representation.
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