Tuesday, March 29, 2016

Get that Surety Bond!

    Under the Massachusetts Uniform Probate Code (MUPC), you can administer your Probate Estate one of four (4) different ways: 
  1. Voluntary Administration, if your Probate Estate consists of less than $25,000.00 and a car (any value);
  2. Informal Probate, if there is no need for Court involvement and everybody interested agrees (or do not object);
  3.  Formal Unsupervised Probate, where there is Court involvement, but no need to file the traditional Inventory and Accounts, and have them approved by the Courts; and
  4.  Formal Supervised Probate, where the traditional Inventory and Accounts need to be filed with the Court and Allowed after notice to all the heirs, creditors, and other interested parties.

    Prior to the enactment of the MUPC on March 31, 2012, (the day before April Fool's Day!), all probate estates exceeding $15,000.00 were automatically Formal Supervised Probates. In passing the legislation, the Massachusetts legislature was catching up to most of the rest of the country, which had figured out that in most cases, the incidence of malfeasance did not justify the extra cost of administering a Court-supervised estate. 

    However, the lower cost of probating estates does not come without it's risks. With less court supervision and attorney supervision becoming the norm, there are more opportunities for the less-scrupulous and less-competent fiduciaries to take advantage of their position, and possibly embezzle or waste Estate monies.

    Massachusetts probate procedure requires that a Bond be filed with every case except the Voluntary Administration. The Bond can be Without Sureties, i.e. "My word is my bond."; with Personal Sureties, where two individuals personally guarantee performance by the Personal Representative; or with Corporate Surety, where a Bonding Company collects a monetary annual premium from the Personal Representative and insures performance by guaranteeing the distribution of the assets to those entitled to them. 

    Most attorneys routinely file Probate petitions which ask that surety be waived altogether. Heirs and beneficiaries routinely assent to this, often on the advice of counsel who tell them that it will save the Estate money, which will ultimately go to the Heirs. Sometimes this is a very bad idea.

    A surety bond, especially a corporate surety bond, is the best protection you have against losing your inheritance through fraud, theft, or negligence, and the cost is only a small fraction of the Probate Estate. Unless you totally trust Uncle Fred or Cousin Trudy to do the right thing handling tens or hundreds of thousands of dollars, insist on a surety bond. Several years ago, one of my past clients and his family trusted a relative to sell a parcel of Probate real estate for over $1M, and distribute the funds. Three years after the sale, after none of the relatives received their inheritance, it came out that the Executor had embezzled almost all of the money, leaving the heirs with the time-consuming and expensive job of hiring counsel to attach real estate and bank accounts, in the hope of recouping some of the monies. None of that would have been necessary if they had insisted upon Corporate or Personal Sureties. A Corporate Surety Bond in particular would have paid out very quickly. 

    Experience teaches us quickly in this line of work that even the threat of prison does not always deter criminal conduct, even if the victims are family.


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