August 13, 2018

“Bonding Unbundled” – what is an administration bond and when is it necessary?

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As an executor responsible for administering an estate, having to apply for an administration bond of indemnity (“administration bond”) can be a costly, time consuming, inconvenient, and invasive experience. First, in our experience there are few insurance companies offering this product. Not surprisingly, the premiums for these bonds are calculated on a sliding scale and vary between insurance companies. Based on the data we gathered, it seems that the average market premium for a $1,000,000 bond is approximately $2,500/year (or 0.25%). Keep in mind that the law requires the bond value to be double the value of the estate, and with the recent real estate boom, it is not unlikely for the average estate to reach a $500,000 value. Furthermore, the personal financial profile of the executor must be revealed to the insurer in the application which, needless to say, can be very intrusive and unsettling. Finally, it is not unusual for these applications to take several weeks to process which, when added to the time it takes to get through the probate process, can significantly delay the administration of the estate.

As a rule, according to s35 of the Estates Act, an administration bond is always required before the court issues a certificate of appointment.  Some exceptions to this rule apply if the applicant is (i) a Government entity; (ii) court appointed; (iii) a surviving spouse on an intestacy who applies to become the estate trustee and the estate value doesn’t exceed their preferential share (currently $200,000).

That said, the current general practice is for judges to exercise their discretion under s37(2) of the Estates Act and dispense with the need for an administration bond where the applicant is named in the Will as an estate trustee and they are a resident of Ontario.

To aid judges in coming to this decision to waive the bond requirement, the client should consider inserting a clause into their Will confirming their wish that the estate trustee not have to post a bond. In addition, once the client dies their estate trustee should file an affidavit containing the following information, as outlined in Re Henderson Estate:

  • Identities of the beneficiaries and their signed consents to the waiver;
  • Value of any minor beneficiary’s interest;
  • Last occupation of the deceased;
  • Present employment and occupation status of the estate trustee;
  • Factors certifying the estate trustee’s permanent residency status in Ontario; and,
  • Proof of the estate debts outstanding and a strategy to deal with those debts.

While there is no guarantee that an executor’s affidavit will convince a judge that the estate will be administered according to law, and therefore a bond is not necessary, it is a proactive and progressive step that can be taken to ensure that the administration of the estate is less costly, and timelier.

Cambridge LLP is a leader among firms in the practice of estate litigation and estate planning and administration