Whether a probate bond is ever really discharged is a rhetorical and challenging question. The realistic answer is that it may not be unless the bond is discharged by the probate court at the time the final accounting is approved or the statute of limitations has run. Whether the statute of limitations has run is state specific and subject to additional tolling defenses. Most probate cases, such as conservatorships, guardianships, trust, and estate administrations, work their way through the probate court and are simply closed without a formal discharge of the bond. In some of the New England states, such as Massachusetts and Maine, the court will not discharge the bond without submission of a fillable form requesting discharge of the bond. In Connecticut, New Hampshire, and Vermont, the probate court will issue an order to discharge the bond upon approval of the final accounting and/or final report by the fiduciary. Unfortunately, in many jurisdictions, even where a probate court has discharged the bond, allegations of fraud and self-dealing may reopen a closed estate years later. This can lead to exposure not only to surcharge on the bond or bonds but also to reimbursement of attorneys and expert fees of the challenging party. This article briefly discusses the exposure and the risks.
The Exposure On The Bond
Although probate bond claims are less than 1% of overall surety underwriting claims statistics, the exposure can be significant depending on the circumstances. For example, the penal sum of an individual bond may be in the millions of dollars depending on the assets held by a probate estate. Similarly, a surety may underwrite one principal with multiple bonds for multiple estates, conservatorships or guardianships. Individually, the risk on those bonds may seem to be non- existent or negligible due to the small size of individual bonds. However, an objection to one bond for alleged breaches of fiduciary duty may lead to a further inquiry by the petitioner or the court and a review of all cases by the principal, including opened and closed cases. This increases the overall risk on the account and potentially exposes the surety to losses, expenses, and in some states, the petitioner’s attorney’s fees.
To highlight the exposure, in a recent New Hampshire case involving a private guardian, the surety had underwritten over $25M in bonds for multiple guardianships and trusts managed by one principal. The Personal Representative for the ward objected to certain fees charged by the private guardian asserting that the fees were disproportionate in comparison to the fees charged by public guardians- $125.00 hr. v. $60.00.
The New Hampshire Probate Court has the power to reopen a fiduciary’s account for good cause. Good cause may consist of fraud, misrepresentation, self-dealing by the fiduciary, mistake, and/or any combination thereof. See Massachusetts Bonding & Ins. Co., v. Keefe, 100 N.H. 361, 363 (1956) (citations omitted). What is sufficient cause is a question of fact depending upon the particular circumstances of each case. Thompson v. Trustees of Phillips Exeter Acad., 105 N.H. 153, 157 (1963). Here, the court agreed with the personal representative and ordered that the principal reimburse the estate the delta between the private versus public guardian fees. Rather than simply pay the ordered amount, the principal actively defended her duties as a guardian and fully accounted for each expenditure to justify both her time entries and value of her services at the private rate of $125.00. The Office of Public Guardian then launched a wholesale review of every case opened and closed involving the private guardian. Once the review began, the court did not limit its investigation to the amount of fees but further investigated other actions taken by the private guardian including the sale of assets of the estate, the valuation and sale of antiques, and purchases made for the care and comfort of the ward. The surety stepped in to defend the claims in concert with the principal when the personal costs of defending the multiple claims drove the public guardian to the brink of bankruptcy. The surety objected, arguing that: (1) the bonds had been previously discharged by the court; (2) the bonds were discharged as a matter of law when the accounts were approved without objection; (3) there was no breach of fiduciary duty on behalf of its principal; and (4) the retro-active application of a decrease in guardianship fees was subjective and arbitrary. The surety was prepared to consolidate the cases and appeal to the State’s highest court. The surety incurred significant attorney’s fees to investigate and defend its principal including negotiation of several of the bonds to ultimately obtain a discharge and release all the bonds.
Similarly, in a recent Massachusetts case involving a guardianship bond with a penal sum of $950K, the Personal Representative of the Estate filed a petition to reopen the guardianship estate five years after the final accountings were approved by the court . The Personal Representative alleged that the guardian committed multiple breaches of fiduciary duty, including but not limited to failing to prudently invest and manage the ward’s assets causing losses to the Estate, charging excessive and unnecessary fees for her services, inaccurate accountings, and failing to prepare estate plans for the ward or her heirs-at-law. Under Massachusetts law, accounts which have been previously allowed by the court may be reopened after the final decree if the court finds fraud or manifest error which may be constructive or technical in nature. Reynolds v. Remick, 333 Mass. 1,10 (1985).
In this case, the court ordered the reopening of six previously approved accountings finding that the petitioner met what arguably should be a high standard to reopen an account. The court applied the well settled principal in Massachusetts “that if a person makes a representation of a fact, as of his own knowledge, in relation to a subject matter susceptible of knowledge, and such representation is not true; if the party to whom it is made relies and acts upon it, as true, and sustains damage by it, it is fraud and deceit, for which the party making it is responsible.” National Acad. of Sciences. v. Cambridge Trust Co., 370 Mass. 303, 308-09 (1976) (citation omitted). Here, the principal argued that she meticulously accounted for all the expenses that were for the ward’s health and benefit. The court disagreed and allowed the guardianship to be re-opened. Thus, it does not matter whether the guardian intended her accounts to be deceptive – negligent misrepresentations of fact are legally sufficient grounds for reopening accounts in Massachusetts.
In the Massachusetts case, there were multiple legal issues, two of which were issues of first impression for the court including whether the guardian was required under Massachusetts law to prepare an estate plan to include the heirs-at-law and the degree of reliance on outside counsel and other professionals in management of the estate. Of note, the principal was a friend of the petitioner with no business or financial background. As such, the principal retained a reputable fund manager to manage the assets of the estate with several layers of oversight. Undaunted, the petitioner continued to allege the guardianship suffered losses as a result of the principal’s lack of personal oversight. As in the New Hampshire cases, the surety incurred significant expense in defending the action with significant motion’s practice, retaining of multiple experts and legal fees to protect its interest in light of the legal issues in the case. The case ultimately settled after two mediations on the eve of trial.
The Answer To The Question
To answer the question, “is a probate bond ever really discharged?” It is until it is not. What should a surety do, if anything, to insure the closure of the estate and discharge of its bond? It may not be any different than the common underwriting standards already in place. Communications between the underwriters and agents to review high exposure bonds should be carefully monitored especially where there is a singular principal on multiple high exposure bonds. This should include a periodic review of the financial condition of the principal; a review of whether the probate application lists an attorney to contact to determine the closure of the estate and whether the bond has been discharged by the court. With the advent of probate courts utilizing ECF, an estate case can be discretely reviewed on-line. If an objection to an account appears in the probate record that may expose the bond, early investigation may reduce the risk of a larger loss on the bond.