A fiduciary bond - is a type of legal instrument that guarantees that the trustee will act in favor of others in the best possible manner and accordance with applicable law. A trustee is a person usually appointed by a court who has a duty of loyalty and fairness to another person's case (M. Klinger, G. J. Bachrach 2008, s. 451 - 452).
The fiduciary bond aims to prevent fraud, embezzlement or dishonest acts by the trustees. The bond holds the fiduciary responsible for any deficiencies that may occur. In addition, if the trustee commits fraud or does not comply with the bond designation, a claim may be brought against them.
Types of fiduciary
There are several types of trustees who need a bond. These are (E. G. Gallagher 2000, s. 191 - 192):
- The receivers - a person authorized by a court to hold assets in trust for another person. He is appointed to manage the affairs of a company in financial difficulty;
- The testament trustees - is appointed by the testator to execute the will after his death for the purpose of distributing the assets of the testator;
- Contractors and administrators of the estate of the deceased - is a guardian appointed by the court to manage the assets of a lawful civil servant;
- Guardians and conservators of minors' and persons' property will find the decision of the inheritance court violated - a person entrusted with caring for the property and rights of another person who, due to age, legal liability or due to other justified reasons, is not able to make appropriate and informed decisions regarding the management of their own affairs and assets (E. G. Gallagher 2000, s. 191 - 192).
The parties and the terms of fiduciary
"Like other surety bonds, a fiduciary bond arises only by the express contract of the parties. There are three parties to the bond (E. G. Gallagher 2000, s. 193):
- the principal/fiduciary, whose debt or obligation is the subject of the transaction;
- the obligee/beneficiary, to whom the debt or obligation runs;
- the surety, who undertakes to perform the debt or obligation if the principal defaults".
"The terms of the bond are given their ordinary meaning, but if it is a statutory bond (as most fiduciary bonds are), the statute controls over any conflicting terms in the bond itself. Even though a bond may not be executed or approved in the prescribed manner, the surety may be estopped from contending the statute does not apply . Similarly, the surety may be estopped to deny the bond's recitals that the principal's appointment was valid. That the surety was fraudulently induced to issue a fiduciary bond is no defense, absent participation in the fraud by the beneficiary or party seeking to recover on the bond" (E. G. Gallagher 2000, s. 193).
- Gallagher E. G. (2000) The Law of Suretyship American Bar Association,
- King B. C. (2001) The Law of Miscellaneous and Commercial Surety Bonds American Bar Association, Chicago,
- Kirby L. D. (2004)The Executor's Guide: How to Administer an Estate Under a Will Greenwood Publishing Group,
- Klinger M., Bachrach G. J. (2008) The Surety's Indemnity Agreement: Law and Practice American Bar Association, Chicago,
- Ransome W., Sampford C. (2013) Ethics and Socially Responsible Investment: A Philosophical Approach Ashgate Publishing, Burlington,
- Schmitt W. A., Bagby G. S., Lyons J. R. (2019) Kentucky Probate LexisNexis
Author: Anita Byś