What a Bond Insures
A surety bond is an insurance policy against wrongdoing. When your executor or your estate purchases one, the insurer agrees that if your executor errs in the process of settling your estate, either deliberately or unintentionally, it will compensate your beneficiaries for any money lost. Probate can be a complicated process with many opportunities for missteps, so many states consider this insurance necessary. Your executor is usually charged with gathering your assets after your death and valuing them. She must then pay your debts and taxes, sometimes by liquidating your assets to raise the money. If you named your estate as beneficiary of any investment or retirement accounts, they must pass through probate to transfer to others, so your executor may have to manage these throughout the process as well. They're property of the estate and she has a fiduciary duty to make sure they don't lose value. If they do lose value because of some fault on her part, the insurer pays the loss to your estate. A surety bond does not protect your executor; it protects your beneficiaries against your executor's possible malfeasance.
For obvious reasons, companies that issue surety bonds are not likely to insure executors with criminal records, even if your particular state allows such an individual to serve. You can avoid surprises for your beneficiaries if, before you write your will, you make sure the person you select has a strong financial history and no criminal record. If you require your executor to secure a surety bond, she must typically authorize the insurer to run a background check on her. Her credit is also an issue, so the insurer will probably request permission to obtain a copy of her credit report. If she's on the verge of filing for bankruptcy protection, or if she's simply in way over her head with debts, these issues can cause the insurer to deny her a bond. Applying for a surety bond typically involves filling out an application and completing a statement that divulges her personal finances. She'll have to supply a copy of the court order opening probate and naming her as executor, or at least the probate petition in which she's requested appointment.
In some states, the law provides for executors to pay for surety bonds out of their own personal funds, but the terms of your will can usually override this if you direct that your estate should pay the cost. The fees typically increase with the value of your estate – the more worth the insurer is asked to cover, the more it charges for the service. If your executor's credit history is bad, this increase the insurer's risk and may increase the bond fee as well. The fee is usually a percentage of the bond requested, which is essentially the value of your estate. Real estate is typically subtracted from the estate's value, however – it isn't liquid and there's little an executor can do to dramatically decrease its value. Additionally, many states require probate court approval before an executor can sell the deceased's real property.
Not all executors have to deal with the added responsibility of securing a surety bond. It depends largely on three factors: the decedent's will, your state's laws, and whether the deceased left a will at all. Most states allow you to state in your will that posting bond is not necessary, and if you do, this will be honored. Most states mandate surety bonds if you don't leave a will at all, but even in this case, your executor might be able to avoid taking out a bond if all your heirs and beneficiaries agree in writing that it's not necessary.