What Are Fiduciary Bonds? – Everything You Need to Know

Who Is a Fiduciary?

A fiduciary refers to a person or party in a position of trust. A fiduciary is required to act in the best interest of others with whom he interacts, at all times exercising his skill and judgment for the benefit of those who need help, not self-gain. The most common type of fiduciary is an executor or personal representative for an individual’s estate after death, but there are many other types. People may serve as trustees, guardians, conservators, administrators on estates if they are charged with looking after someone else’s assets or well-being. Fiduciaries also include attorneys acting on behalf of another client, stockbrokers holding assets belonging to their clients, insurance agents, investment brokers, and real estate agents.

What Is a Fiduciary Bond?

A fiduciary bond, also known as a fidelity bond, is an insurance policy or surety bond for people who serve in positions of trust when it comes to others’ assets or well-being. This type of insurance ensures that loss will be covered if the fiduciary misappropriates assets or defrauds others because he was not acting in his clients’ best interests.

Example of a Fiduciary Bond

An example of a fiduciary bond is when a person, say, Mr. Shapiro, a man of old age who can no longer manage his affairs, hires a fiduciary, Ms. Lewis, to manage his assets and investments for him. If something should happen to Mr. Shapiro and Ms. Lewis is found to have mishandled any of his money or investments, a fiduciary bond would protect him from any legal damages that may come about as a result.

Benefits of a Fiduciary Bond

There are several benefits to having a fiduciary bond in place: Benefits_of_a_Fiduciary_Bond

Reimbursement in Case of Fraud or Theft

The main benefit of a fiduciary bond is that it provides reimbursement for any losses caused by the fiduciary’s dishonest or fraudulent actions. This can help to protect the person or persons who hired the fiduciary from any financial losses they may suffer.

Peace of Mind

Peace of mind is another benefit of having a fiduciary bond in place. Hiring someone to provide you with financial advice or management can be stressful, but knowing that the benefits of a fiduciary bond are protecting you helps alleviate some of those worries.

Protection of Assets

A fiduciary bond can also help to protect the assets of the person or persons who hired the fiduciary. If a fiduciary is mishandling assets, mismanaging investments, or engaging in any other type of fraudulent activity, the fiduciary bond will help to cover those losses.

Types of Fiduciary Bond

There are several different types of fiduciary bonds. Below are some including their descriptions:

Personal Representative Bond

A personal representative bond is to protect the executor or administrator’s work in settling an estate that involves real property; this includes houses, buildings, and other kinds of land.

Executor Bond

An executor bond protects the interests of heirs when there are assets to distribute after someone dies. The bond also covers any mishandling of funds managed for distribution including embezzlement by the executor.  

Trustee Bond

A trustee bond protects a person who has been given control over another person’s money or property due to being named in a will or trust document. The trustee bond ensures that all responsibilities are followed through until ownership passes on to the beneficiary(ies) named within the trust document.

Administrator Bond

An administrator bond is similar to a trustee bond, but it covers an estate that has been opened due to the death of the person who was responsible for managing their financial affairs. This type of bond is also used when there is no will or trust document in place.

Conservatorship Bond

A conservatorship bond protects the assets of a protected person, which are held by the conservator. The conservator is typically appointed by a court to manage the property and finances of someone unable to do so themselves due to age, illness, or some other incapacity.

Guardianship Bond

A guardianship bond protects the assets of a minor or an incapacitated adult who has been placed under guardianship. The guardianship bond ensures that the appointed guardian will follow all court rules and is properly caring for their ward.

Final Thoughts

When choosing a fiduciary, it is important to do your research and make sure you are aware of the benefits of having a fiduciary bond in place. While there are some benefits, there are also risks associated with different types of bonds. Make sure you are aware of what you are getting into before entering into any contract or agreement. By doing so, you can help protect yourself and your assets from any potential harm caused by dishonest or fraudulent activity on the part of your fiduciary.

When hiring a fiduciary, such as an attorney or property manager, it is standard to ask for one. However, the decision to require a fiduciary bond is up to you and should be based on your finances and circumstances. Although there are benefits to having one in place, they do tend to increase costs and can vary depending on your specific situation. For this reason, many choose not to have a bond in place and instead save the money that would have been spent on one.
Fiduciary bonds do not come cheap. The fee charged depends on several factors including what type of bond you are requiring, how many years it will cover, your credit score, etc.
A fiduciary is responsible for handling the finances or property of another person legally and responsibly. This includes making sure investments are sound and that all rules and regulations are followed. They are also responsible for any losses that may occur as a result of their actions.
Fiduciary bonds are not insurance policies. A fiduciary bond is a type of insurance policy that protects the interests of someone who has put their trust in another person to handle their finances or property. An insurance policy, on the other hand, is designed to protect people or businesses from financial losses if something unexpected happens. For this reason, an insurance policy would not be suitable for protecting against the actions of a fiduciary.
A fiduciary bond is a type of surety bond. A surety bond is a contract in which one party agrees to be responsible for another party's debts or obligations if they cannot pay them. For this reason, a fiduciary bond is also referred to as an indemnity bond.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.