When it comes to estate planning and trusts, one of the most critical decisions you'll need to make is who to appoint as your trustee. The trustee is the individual or institution responsible for managing the assets within your trust according to your specific instructions. This is not a responsibility to be taken lightly. But another question often arises in this process: should you require your trustee to be bonded?
A trustee bond, also known as a fiduciary bond, is a type of surety bond that protects the beneficiaries of a trust against any fraudulent or negligent actions by the trustee. It serves as a form of insurance, ensuring that beneficiaries will not be left empty-handed if the trustee mismanages or steals the trust's assets.
On the surface, it seems like a no-brainer. After all, it's just an added layer of protection for your loved ones, right? However, it's not always that simple, and the decision should be made based on a variety of factors.
Requiring a bond can be a good idea if the trustee is not a close family member or friend, or if they don't have a proven track record of financial responsibility. In such cases, a bond can provide peace of mind knowing that your beneficiaries are protected. A bond may also be wise if the trust is large, complicated, or if it will be open for a significant period, as these factors can increase the potential for mismanagement.
On the other hand, there are several reasons why you might choose not to require a bond: bonds come with premiums that are often paid out of the trust itself, reducing the assets available for beneficiaries. If your trustee is a close and trusted family member, the cost of the bond may not be a necessary expense.
In addition, asking a family member or close friend to get bonded can strain relationships, as it may imply a lack of trust. Further, the process of acquiring a bond can be time-consuming and potentially invasive, as it often involves credit checks and other financial evaluations.
Some persons opt to appoint a professional trustee, like a bank or trust company. Such institutions are already bonded or insured, making an additional bond unnecessary.
In conclusion, the decision to require your trustee to be bonded is a personal one, contingent on your specific circumstances and relationships. It can be beneficial to discuss these matters with a qualified attorney who can provide guidance based on your unique situation. And remember, the most important thing is choosing a trustee who is trustworthy, reliable, and capable, as they will play a pivotal role in ensuring your wishes are carried out when you're no longer around to do so yourself.
To learn how Stouffer Legal can help you take action to protect your family’s legacy, you can click here to view our online Estate Planning, Asset Protection and Elder Law workshop
