When someone in New Jersey dies without a will, the court will appoint an administrator to settle the estate. One of the requirements the judge will ask for during this procedure is an administration bond. Here’s an overview of what this bond is and why it might be needed in estate planning.
What is an administration bond?
An administration bond is a type of surety bond that is required by the court in some cases when someone dies without a will. The purpose of the bond is to protect the interests of the estate and its creditors.
How does it work?
When someone dies intestate or with a will without a chosen executor, their property must go through probate court. The judge in charge of their estate planning/probate will appoint an administrator to oversee property distribution, payment of debts, taxes, and other expenses. This person can be anyone, so if the court wants to be sure that they will do their job well, they’ll ask them to provide an administration bond.
Thusly, as a requirement, the estate administrator will sign up with a surety company and pay premiums on the bond for a year (which they can renew if the probate process lasts longer). If a claim is made against the administrator, the surety company will investigate to determine whether or not they were at fault. If found responsible for not fulfilling their fiduciary duties, the surety company will compensate the affected parties by paying for any damages or losses experienced.
The cost of premiums the estate administrator will pay will depend on their personal credit. This is their trustworthiness for completing their fiduciary duties. And the amount of bond the surety company will ask for will be based on the estate’s value.
Note that this is not always a requirement in New Jersey. But, it may be necessary if you want to protect the estate from damages caused by mismanagement.