Clients in the past have asked us about what issues might prevent their client from obtaining a bond from a fiduciary perspective. Prominent among them are:

  • Recent bankruptcies/poor credit,
  • Disputes with family members — especially when the fiduciary matter is related to an estate, and
  • Prior criminal history. 

We have ways of looking past and working around these issues as they arise, but if we’re talking about what makes it difficult for somebody to obtain a bond, these three items jump out.

Recent bankruptcies mean that the person is going to have a poor credit score. Part of this issue is that if the surety is bonding someone as a fiduciary of someone else or an estate, they want to make sure that the person can manage their financial affairs properly before they agree to bond them to handle somebody else’s.

Criminal history is related to someone’s character, which is reviewed as part of the bonding. The surety can look past some crimes, but crimes such as theft or fraud are much more difficult to work around. Multiple arrests are also concerning from an underwriting perspective. 

Lastly, family disputes can prolong an estate matter and could force the surety to retain counsel. The longer the surety has a bond out there, the higher the risk and likelihood that there could be a claim on the bond. Alleging that someone else did something wrong creates a longer time horizon. Having a bond out there for six months, versus multiple years, can be more concerning because the surety must account to the court. And with estate matters, the longer the time, the more they need to account for the money they have had in their possession during that time. 

The annual cost of a fiduciary bond does not take into account possible attorney fees that the surety may incur if there is a claim on the bond. The surety has a right to its fees through the bond application or indemnity agreement. The surety has the right to hire its own counsel to prevent a loss on the bond, even when it is ultimately determined that the fiduciary did not act improperly.

The takeaway is that just because you may have a client dealing with these issues doesn’t mean that they can’t get bonded. If this is the case, you want to pick up the phone and give us a call to discuss how we can work around the issues and get the bond that they need.

Neil Pedersen
15 Maiden Lane Suite #800
New York, NY, 10038

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