Monday, December 14, 2009

What is a bond and why do I have to post one?

In the world of Oregon elder law, a bond is required in almost all conservatorships and many estates. When you are appointed a conservator, you are put in charge of funds belonging to an elder who can no longer handle money. The bond is a promise by a bonding company to the court and the impaired elder to replace any money you steal. So if the first thing you do as conservator is take the money and fly to Paraguay, the bonding company is on the hook for the loss. In an estate you are appointed personal representative--sometimes called executor--to manage the money that belonged to the dead person for the benefit of the heirs. If you steal the money instead, the bonding company pays off.

Because of the cost, most wills ask the court to dispense with a bond and courts normally grant the request. If, however, the person who died did not waive bond, or left no will at all, you will have to post a bond to guarantee that you don't run off with the money.

People have the mistaken idea that getting a bond is related to the applicant's honesty. That isn't really the case. Bonding companies offer bonds using the same standards used by credit card companies in offering credit. The availability of a bond is dependent upon the wealth and credit history of the applicant. When someone comes to me wanting to be appointed conservator in order to protect grandma's million dollars, the very first thing I do is call my bonding company. My client could be as upstanding and honest as the day is long, but if she is a store clerk who lives in an apartment, there is no bonding company in the world who is going to bond her for a million dollars. She simply does not have enough money and  credit worthiness to get the bond. In an estate, the same thing applies. Grandpa's will may name cousin Bob to be the personal representative, but if Bob can't qualify for the bond someone else will end up doing the job.

In some cases none of the people interested in the impaired elder or the estate can qualify for the bond. In those cases, the lawyer handling the conservatorship or the estate has to look for a professional to do the job. I am not convinced that professionals do a better job at being a conservator or a personal representative than family members, but professionals all have  established relationships with the bonding companies. If they don't, they are out of business.

Even when a family member does qualify for a bond, it is expensive. Depending upon the credit worthiness of the applicant, the bond for a middle class conservatorship or estate can be a couple thousand dollars a year. Consequently, lawyers are always looking for ways to reduce the amount--and therefore the cost--of the bond. The most common way of doing this is by restricting assets.

Let's say grandma dies owning a $350,00 home and a $50,000 investment account. Little Hewey qualifies for a bond, but wants to reduce expenses so there is more money to distribute to him and his brothers, Dewey and Louie. Hewey will ask the court to restrict sale of the real property so that it cannot be sold without court order. That will protect the real estate. He will then ask that the bond be set at $50,000, enough to cover the investment account. The savings to the estate will be significant. Hewey coult also put the cash in a restricted account. This would also reduce bond costs.

Hewey has to be careful though. Filing those motions to restrict sales of real estate and restrict accounts increases attorney fees. He needs to make sure the savings are not eaten up in additional lawyers fees. The key will be in not spending more money trying to reduce the cost of the bond than the bond would have cost in the first place.

Bonds are important protections in estates and conservatorships, but they also prevent some good and honest family members from serving. When a family member can serve, he or she must examine carefully both the cost of the bond and the cost of the legal strategies to reduce it.

1 comment:

  1. My sister, deborah davis, stole our mother(Lois Davis`) money and Lois was removed from Crestview Nursing home( Multnomah) and sent to live in non licensed strangers private home ? Why has her lawyer, Julie Lohuis, not collected on the Bond and put my Mother back in a proper facility ?