Fiduciary Bonds

This article was submitted by the Surety Association of Canada.  To read the full PDF copy of this article, please click here.

Most  people  know  the  importance  of  having  someone  look  after  your  financial  interests,   both  in  life  and  after.  For  our  life  finances  we  hire  accountants.  To  ensure  that  our  wishes   are  upheld  when  we’re  no  longer  here  to  do  so  ourselves,  someone  else  must  do  it  for  us.   The  question  is  who?

1.  What/Who  is  a  “fiduciary”? In  simple  terms,  a  fiduciary  is  a  trustee;  someone  whose  job  is  to  safeguard  the  interests  -­‐   estate,  property  or  business  -­‐  of  the  person  they  represent.  A  fiduciary  could  be  a  person,   bank  or  trust  company,  appointed  by  a  court  order  or  assigned  in  someone’s  Will.  A   fiduciary  has  clear-­‐cut  legal  duties,  which  vary  from  province-­‐to-­‐province.

2.  What  is  the  Role  of  the  Fiduciary?  Fiduciary  comes  from  the  Latin  word  fiduciarius,  meaning  “(holding)  in  trust,”  from  fides,   meaning  “faith,”  and  fiducia,  meaning  “trust”1).  From  this  definition  it’s  easy  to  conclude   that  a  fiduciary  must  act  in  good  faith,  with  complete  honesty,  integrity  and  loyalty.  It  is  a   significant  legal  responsibility  that  should  be  taken  seriously. Fiduciaries  must  comply  with  the  legal  requirements  of  their  appointment  with  the  estate   legislation  for  their  province  and,  where  applicable,  a  court  order  and/or  deceased’s  Will   for  this  role.

3.  What  to  Consider  When  Choosing  a  Fiduciary?  When  choosing  a  fiduciary  to  act  on  your  behalf,  you  want  to  be  sure  that  the  person  or   entity  you  choose  has  your  interests  in  mind,  is  willing  and  capable  of  managing  the   responsibilities  of  their  role  and  will  act  in  good  faith  on  your  behalf.  It’s  important  to  note   that,  when  you  name  an  executor  in  your  Will  to  manage  the  affairs  of  your  estate,  you  are,   in  fact,  identifying  a  fiduciary.  Depending  on  the  circumstances,  a  court  of  law  has  the   authority  and  discretion  to  appoint  a  fiduciary  on  your  behalf,  if  they  feel  one  should  be   appointed,  but  no  one  was  assigned  this  role.

4.  Common  Situations  Requiring  a  Fiduciary.  Here  are  some  common  situations  where  fiduciaries  are  required  and  where  fiduciary   bonds  (see  5.  below)  can  be  advantageous  to  protect  the  interests,  assets  and  rights  of  the   individual  estate  creditors  and  beneficiaries:

Handling  the  affairs  of  a:

a) Person  who  has  died  without  a  Will  (intestate). Person  who  has  died  with  a  Will  (testate);  where  the  executor  resides  outside  of  the province.

b) Person  who  has  died  in  testate,  but  the  named  executor  does  not  wish  to  serve  in  their role.

c) Person  who  is  incapacitated  and  who  has  no  Living  Power  of  Attorney.   Trust  established  under  a  Will  or  deed,   And

d) For  the  estate  of  a  minor.

e) Taking  control  of  a  business  that  files  for  bankruptcy.

Responsibilities  a  fiduciary  might  be  obligated  to  carry  out:

a) Advising  pertinent  parties  of  their  appointment.

b) Preparing  and  filing  an  account  of  inventory  and  valuation  of  assets.

c) Ensuring  the  assets  become  the  possession  of  the  entitled  parties,  defined  by  the
provincial  estate  act  and/or  deceased’s  Will.

d) Taking  the  necessary  steps  to  manage,  protect  and  preserve  the  assets.   ␣ Paying  creditor(s)  of  the  estate.

e) Filing  a  final  accounting  with  the  court  when  all  assets  have  been  disbursed  to  have  the bond  discharged.

f) Other  obligations  mandated  by  a  Court  of  Law.

NOTE:  This  list  is  just  an  example  of  some  of  the  responsibilities  a  fiduciary  might  be   obligated  to  carry  out.  Depending  on  legal  requirements,  the  obligation  can  be  broad  (e.g.   acting  in  good  faith),  or  specific  (e.g.  maintaining  detailed  financial  records).  If  there  are   questions,  it’s  advisable  to  seek  the  services  of  legal  counsel  for  advice  and  assistance  to   ensure  the  fiduciary  is  acting  within  the  law  or  decree.

5.  What  is  a  Fiduciary  Bond?   Fiduciary  Bonds  provide  insurance  protection  against  the  possibility  of  fraud  or   embezzlement  by  a  fiduciary.  They  are  a  contractual  guarantee  to  protect  the  interests   placed  into  the  trust  or  care  of  the  fiduciary.  This  includes  the  interests  of  assets  held  in   trust  for  beneficiaries,  estate  creditors,  minor(s),  or  for  the  individual(s)  who  are   incapacitated.  If  the  fiduciary  does  not  carry  out  the  obligations  in  accordance  with  the   jurisdiction’s  legal  requirements,  the  bond  is  a  contractual  guarantee  that  can  be  used  to   remedy  the  situation.        Fiduciary  Bonds  are  divided  into  two  groups:  probate  matters  (e.g.  estate  bonds),  and   other  matters  (e.g.  receiver  and/or  trustees  in  matters  of  insolvency,  that  are  being  dealt   with  in  Provincial  and  Federal  Bankruptcy  courts).

NOTE:  Fiduciary  bonds  are  not  “Will  insurance”  products*.  Coverage  under  insurance   products  protects  the  executor  of  the  estate;  whereas  the  fiduciary  bond  is  designed  to   protect  the  estate  heirs,  the  estate  creditors,  the  estate  minor(s)  or  the  individual(s)  who  have   become  incapacitated.  The  fiduciary  bond  is  a  legally-­‐binding  agreement  and  remains  in   place  for  the  entire  time  it  takes  the  fiduciary  to  carry  out  their  legal  obligations.

*  Will  insurance  is  not  a  replacement  or  an  alternative  for  fiduciary  bonds.  Make  sure  you  are   obtaining  appropriate  coverage.  Check  with  your  insurance  broker  for  more  information.     

6.  Common  Fiduciary  Bonds:

a)  ADMINISTRATION  BONDS  (also  referred  to  as  EXECUTOR  BONDS  and  ESTATE   BONDS)  are  required  when  someone  dies  intestate.  By  law,  Administration  Bonds  ensure   the  administrator/executor  of  the  estate  complies  with  the  provinces’  Estate  Act,  satisfies   the  creditors  of  the  estate  and  distributes  the  estate  assets  in  accordance  with  the  Estate   Act  legislation.

b)  FOREIGN  EXECUTOR  BONDS  may  be  required  by  the  court  for  executor(s)  who  may,  or   may  not,  be  named  in  a  Will,  and  who  reside  outside  the  province  or  country.

c)  TRUSTEE  &  BANKRUPTCY  BONDS  (also  referred  to  as  BANKRUPTCY  TRUSTEE   BONDS)  guarantees  faithful  performance  of  duty  by  a  person  appointed  as  a  trustee  for  the   bankrupt  estate.  The  trustee  must  comply  with  the  Bankruptcy  Act  to  ensure  that  estate   creditors  are  dealt  with  in  a  fair  manner  and  in  accordance  with  the  legislation.

d)  GUARDIANSHIP  BONDS  (also  referred  to  as  STATUTORY  GUARDIANSHIP  BONDS   under  the  Substitute  and  Decisions  Act)  are  required  by  the  Office  of  the  Public  Guardian   and  Trustee  or  the  courts.  These  bonds  are  required  when  the  incapacitated  person  does   not  have  a  Living  Power  of  Attorney,  requiring  the  Public  Guardian  to  take  control  of  the   assets.  This  bond  protects  the  assets  of  the  incapacitated  person.  Application  can  be  made   to  the  Public  Guardian  and  Trustee,  or  the  court,  to  assume  control  of  the  assets  for  the   incapacitated  person.        Guardianship  Bonds  are  also  required  by  the  court  when  a  minor  survives  parent(s)  and   the  parent(s)  have  not  named  a  guardian  to  look  after  the  minor.  The  bond  protects  the   estate  assets  for  the  minor.

7.  Other  Common  Bonds. While  carrying  out  his/her  duties,  a  fiduciary  might  require  additional  bonds  in  order  to   replace  or  transfer  original  financial  instruments,  i.e.  stock,  share  or  bond  certificates.  The   Lost  Instrument  Bond  and  the  Waiver  of  Probate  Bond  are  both  common  bonds  an   executor  may  need  to  administer  the  estate.  These  bonds  are  typically  categorized  and   referred  to  as  “Commercial  Surety  Miscellaneous  Bonds.”

a)  LOST  INSTRUMENT  BONDS  (also  referred  to  as  LOST  SECURITIES  BONDS)  If  the  fiduciary  cannot  locate  the  original  “instruments”  -­‐  stock,  share  or  bond  certificates  -­‐   they  may  obtain  a  Lost  Instrument  Bond  to  arrange  for  the  replacement  or  transfer  of  these   documents.  This  Bond  guarantees  that  if  the  original  lost  financial  instrument  is  found,  it   will  be  returned  to  the  surety  company  for  proper  disposal,  and  that  the  issuer  of  the   replacement  financial  instrument  will  not  suffer  an  economic  loss.  The  benefit  of  the  Lost   Instrument  Bond  is  that  it  enables  the  fiduciary  to  administer  the  estate,  overcoming   barriers  posed  by  lost  securities.

b)  WAIVER  OF  PROBATE  BONDS  are  required  to  transfer  assets  (e.g.  stock  certificates,   investment  or  mutual  fund  accounts)  to  the  names  of  beneficial  heir(s)  of  the  estate   without  the  need  to  produce  Letters  of  Probate  or  Letters  of  Administration.    Opting  for  the   Waiver  of  Probate  Bond  enables  the  fiduciary  to  administer  the  estate  without  applying  for   probate,  which  can  be  costly  and  time  consuming.

8.  Applying  for  a  Fiduciary  Bond. If  you  have  assumed  the  role  of  fiduciary  and  need  a  bond,  your  first  step  is  to  find  a  Surety   Broker  to  guide  you  through  the  process  of  finding  the  type  of  bond  you  will  require  and  to   help  you  apply  for  the  bond.  Because  every  fiduciary  obligation  is  unique,  your  Surety   Broker  will  require  information  from  you  based  on  your  specific  obligations  attached  to   your  fiduciary  role  and  the  applicable  laws  or  court  agreements  pertaining  to  your   fiduciary  responsibility.  Be  sure  to  choose  a  Surety  Broker  that  you  feel  comfortable  with.  A   list  of  Surety  Brokers  can  be  found  at  [website  link].      9.  When  is  a  Fiduciary  Bond  Required  by  Law?   Each  province  has  its  own  governing  legislation  specific  to  what  type  and  when  a  fiduciary   bond  is  required.  Estate  Acts  and  regulations  outline  the  bond’s  purpose  and  specified   obligations  required  by  the  fiduciary.  Often,  it  will  also  advise  the  value  of  the  bond  which   must  be  obtained.

NOTE:  Each  province  sets  out  their  legislated  requirements  and  should  be  consulted  for  the   most  recent  version.

For  more  information  contact  any  of  the  member  Surety  companies  and/or  their  websites  or   more  helpful  articles  and  tips  regarding  the  role  of  bonds  in  a  fiduciary  arrangement.    A  List   of  Surety  Companies  and  Surety  Brokers  may  be  found  at