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Sureties Successfully Address Bonds for Trustees in Maryland

Thursday, March 22, 2012  

Maryland HB 682/SB 722 would adopt the Uniform Trust Code of the National Conference of Commissioners on Uniform State Law (NCCUSL). The bill provides that a trustee would be required to post a bond to secure performance of his or her duties only if the court requires it, or if the terms of the trust required one and the court has not dispensed with the requirement. The bill would authorize the court to determine the amount of a bond, its liabilities, and whether sureties are necessary. The court could modify or terminate a bond at any time.

NCCUSL uniform laws are very difficult to amend in the states because they are drafted and adopted with the intent that all states would enact them without amendment. While the NCCUSL Uniform Trust Code is a default document and all its provisions are subject to amendment in the states, there are enumerated exceptions for provisions that should not be altered. The powers described above granted to the courts to dispense with, require, or modify bonding requirements are among the provisions specified to be unchangeable in the Uniform Trust Code when it is introduced into the state legislatures.

SFAA always raises the bonding issues when the Uniform Trust Code is introduced, and this year in Maryland, the AIA state counsel successfully addressed the bonding issues. SFAA's position is that the trust document should control whether the trustee should be bonded and that the courts should not be permitted to dispense with bonding. If the Maryland House and Senate bills move this year, they will go forward without the provision that the courts must be given discretion to dispense with the bond. Other issues now have been raised regarding the Maryland trust legislation, which are unrelated to bonding, so the bills may not be enacted this year. In any case, we have created another good precedent for amending the Uniform Trust Act when it is introduced again in Maryland or elsewhere.

SFAA argued that this legislation is contrary to the existing scheme of regulation of estates and trusts in Maryland, which generally allow the instrument creating the estate or trust to determine whether a bond is required of the fiduciary. Current Maryland law also distinguishes between the corporate and non-corporate fiduciary in that the former do not require bonding and the latter do. Most importantly, in no other area of the law of estates and trusts in Maryland is the court system given such wide latitude to waive bonds. Under the NCCUSL Uniform Trust Code, the courts can even dispense with bond requirements when they are required in the instrument creating the trust.

Under current Maryland law, every personal representative of an estate under a will must be bonded unless the will expressly waives bonding. Even if the will waives bonding for a personal representative, the court shall require a bond for the payment of debt and inheritance taxes. An interested party or creditor also may petition the court for bonding. Similarly, bonding is not required for non-corporate guardians of children and disabled adults only if the instrument creating the guardianship excuses it. Even then, under exceptional circumstances the court can require bonding for the safety of those interested in the administration of the estate. In addition, if the instrument is silent on whether a guardian should be bonded, the court is given discretion to require bonding.

If enacted, the NCCUSL Uniform Trust Code will replace the Maryland Trust Act, which is silent on bonding. Existing law does not require all trustees to be bonded, but it also does not give the courts broad discretion to override bonding in the instrument creating the express trust. If enacted, the Uniform Trust Code would give the Maryland courts complete discretion on bonding--even when that contradicts the requirements of the instrument creating the trust. There is no reason that express trusts should be treated differently. If a trust is part of an estate plan, the wishes of the creator of the estate for a trustee that is bonded should be honored. The courts should not substitute their judgment as to whether the trustee needs to be bonded or not.

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