Clients are often surprised to learn that Texas law requires them to obtain a bond in certain matters. Bonds most frequently arise in cases where one individual is acting as a fiduciary in handling someone else’s property, such as in dependent administrations and guardianships of the estate. The purpose of a bond is to protect the assets that are at issue in the case.
A court will determine the amount of the bond based on the debts of the estate and the personal property assets, including cash on hand, cash needed to operate a business, income the estate receives, shares of stock, life insurance policies payable to the estate, and other personal property. Real property is not factored into the calculation of a bond amount.
If a prospective estate representative cannot qualify for a bond or does not feel comfortable acting under a bond, there are possible alternatives, including “freezing” bank accounts so that no one can access the accounts without specific court authority.
Bonds also, of course, come with the annual premium payment, which is based on the amount of the bond. Texas law provides that the bond premium may be paid directly from the estate assets, so an estate representative is not required to go out of pocket to pay a bond premium.
If a bonded estate representative does mishandle or misappropriate estate property, the court will probably remove the representative, and then the representative’s bonding company will be sued so that the estate can recover the money that was lost because of the representative’s bad acts.