The Hidden Challenge of Probate Bonds Explained, with Phil Pavarini

0:01 One of the challenges of probate for heirs or for administrators, executors, for attorneys, for real estate agents, you get the you get the filing done, you get the hearing done, it goes well, the judge agrees in court and says, "Okay, you're approved, you have authority, either full or limited, but you need a bond, and then submit your letters of authority, we'll sign them and get started." And it sounds great. You feel like, "Wow, we waited 30, 45 days, maybe you're continued once or twice, but now we're over the hump." But you've got to get the bond, and in Los Angeles, then turn in the bond with a order for the judge to sign, and that trips up a lot of people. Some people aren't bondable, some people don't know they need a bond, some people aren't bondable, but don't fill out the paperwork properly or get the service they need. And so, an overlooked piece of this puzzle I learned early on was the bond, and trying to find ways to help customers and attorneys get over this service. I'm really excited, a third-time guest. We had him on when he couldn't do business in California, I think the first time, 5 years ago. But really a thought leader in this space, who's really involved in helping push online document signing, as well as helping real estate agents and attorneys build their business in the probate space. Phil Peverina, he is the proprietor at probatecourtbond.com. Welcome back, Phil. Thanks for joining us.

1:20 Well, thanks so much for having me again, Bill. It's good to be here. Why is it seems to me that, you know, the consumer, whether an heir, an executor, administrator, they're so excited, they get to turn in the paperwork, they can't wait to the hearing date, and yet it seems like the process after the approval, before they get the letters, which includes getting the bond, it seems like that moves so slowly. What do you think the issue is?

1:42 Well, I think it's a lot in a large part it's unexpected. I, you know, we get calls every day where folks have been in maybe they've had a probate case open for several months or more, and all of a sudden the court pops up the bond issue. Just had one about a half hour ago, and the bond principal they executor called and they were they were surprised. They said, "Well, why do we need this bond?" And I'll tell you even myself, you know, I've been in the business I've been a licensed agent about 20 years and you know, I've been doing this for over 20 years and I'm still learning new things about this business and bonds every day I get something new curveball at me. So, I think that's the biggest part is folks just aren't aware.

2:27 I've said in court many times when the judge will approve the petition for petition of probate and they'll turn to the attorney or the client say, "Okay, we approved and I'll give you full authority but you'll need a bond for you know, the full amount of the estate, let's say $800,000 or I can get you limited authority for only $20,000 and inevitably the customer attorney goes, "Oh, well, we'll save money. We'll go to $20,000 bond." Not to realize that A, it's the same process to get a $20,000 bond and $800,000. You still got to fill out paperwork, get with bond company. But B, you've now spent more money in filing in California at least the process of getting the court approval and they let the bond amount evaluation deter them from getting I think the best outcome. So, let's talk about how does somebody get a bond? Imagine how you get people who come call you to offer or they go on the website. How does somebody go from I need a bond to getting a bond and then talk a bit about your service in California. I know that's something we haven't talked about in the past.

3:29 Sure, absolutely Bill. Well, the process always starts with an application a bond application. And with our intake process, we try to get the consumer to kind of self-identify their own criteria. So, we always communicate you generally need in order to get a easy approval and a low-cost bond you're going to need to have an attorney number one to have acceptable credit is number two, and that there are no disputes and everybody involved is in agreement with the appointment. So, that's basically our first question. And if the applicant says, "Yes, we have all those." then we ask them to fill out our in-house application on our website. If they say no, they might not have an attorney or they might not have the best of credit, then we actually right on our website have an alternate application. So, right from the onset, they go to a non-standard application. And that simply directs it to a bond broker most of the time that can write the more challenging issues. Now it's important to understand that there are so many bonding companies in the country and all of them have different criteria. I have several that absolutely will not do anything without an attorney. They don't care if it's a $10,000 bond and you have a 850 credit score. If there's no attorney, they're not going to write it. And you know, we know which attorneys or which bonding companies will consider certain types of applicants.

4:56 So, with that being said, I we're not tied to one in particular carrier. So, I'm an independent agent. I can access virtually every bonding company in America either through direct appointments or through third-party MGAs or brokers. So, we're not a singular source.

5:18 So, let's hold my difference second. I think that's a very important point that people get frustrated and don't understand. Customers will say that this to me, "I called the bonding company and they say it's more expensive because I don't have an attorney." So, you're trying to save money by not having an attorney, maybe saving 10, 20,000 dollars. Your bond might end costing you a thousand, two thousand, three thousand dollars more. But the reason is cuz there's more risk to the bond. So, talk a little bit about why companies have to charge a higher premium or should or it makes sense they would charge higher when there's no attorney than when there is an attorney.

5:51 Sure. Sure, Bill. Well, first just because one bonding company says no, it does not mean that the case is unbondable at all. It just means that's not the right fit for that company.

6:04 Right. So, it just doesn't fit that company's box and the risk is if the person does not have an attorney, for example, it's almost impossible for someone without an attorney to know all of the regulations and requirements and court you know, whatever the court is going to require on their own unless they have some personal financial experience. Sometimes we can get small business owners, people that are CPAs or even bookkeepers, that sort of thing. If we can document any sort of financial or legal experience or education, we can avoid that requirement or get an exception. But, when the applicant doesn't have an attorney or California is a great example for tiered rates. You mentioned tiered rates and more expensive rates. California is one of the only states that has tiered rates on their bonds. So, bonding companies have to charge you what their filed rates are at the state. But, in most states, you either qualify or you don't. The bonding company isn't They're just not allowed to charge you a different rate if you don't qualify under those primary factors. But, California and a lot of folks don't They almost don't like it on the front end because California, the your credit rating can push you into different rate schedules.

7:29 And it's one of the only states that allows that. So, a bonding company that ordinarily might see someone with a lower credit score or you know, some problem with their credit, in the bonding company can actually charge you a higher rate to account for that extra risk.

7:46 The Golden State. Yeah. Well, I you know, a lot of a lot of folks poke some fun at some of California's regular regulations, but I really see a benefit and I think a lot of states might take some good examples from California.

8:00 Yeah. And it would allow us to bond more people if other states would allow that. So, let's talk about maybe we should go back to the beginning. When we say a bond, who's being bonded? Who's being protected by the bond? Why is it necessary?

8:15 Surely the bond is it at the end of the day, the bond is protecting any error or anybody that's entitled to any money from that estate or any creditor. So, a lot of times folks don't realize the creditors. So, the bond is going to ensure that applicant or the executor is going to disperse those funds as legally required. One thing that I see is happening more often is executors don't necessarily think about tax implications. And the taxes is a creditor. So, as an example, a bond claim is an executor might disperse all of the funds and then later do a tax return for the estate and find out that there were taxes due. So, at that point either the executor has to go back to whoever they dispersed funds to and get that money back to pay the taxes or it could potentially be a bond claim. You know, from either the court or the taxing authority or the creditor.

9:12 But even if it's a bond claim, the bond company would hold the administrator potentially liable if they if they mismanaged the funds, right? I mean, there cases that you talk about that are even I imagine if it's a mistake, they're still obligated to pay the money back. And I would imagine the bond company probably uses legal means to try to collect the money back. They may have to pay the estate to protect the creditor but or whoever, but they're probably going to go after that. And that's why I also think that for the administrator it's important to have that bond because at least it lowers the intensity of the collection. It changes it from your brother or sister or mother or state of California or the IRS to the bond company.

9:53 Yeah, and that's a great important very confusing fact for folks. Bonds are not like insurance at all. So, Right. An insurance policy the if there is a claim, the insurance company is going to pay that claim. You might have to pay deductible and you're done. With a bond, a bond is almost as if that insurance company or bonding company is I like to describe it as if they were cosigning for someone. So, the bonding company is kind of the backstop and they're going to pay that claim. But, the surety bond contract says that whoever the principal is ultimately responsible. So, the bonding company is going to go back to that principal to collect and this is another surprising thing. They're going to collect not only what they had to pay out, but they're also going to collect whatever they had to pay in legal fees or costs

10:41 Right. To collect that you know, to collect that money. So, it's it could far exceed the amount of the actual claim. There is separately in insurance for administrators and executors. I think errors and omissions insurance. I don't think people ever think of that. You know, an attorney typically has as part of their practice. I'm a real estate broker. I have as part of my practice. So, and I've acted as a fiduciary where I have the insurance. But, when individuals do it, and they might be you know, high net worth individuals. You know, mom or dad passed away and they step in and don't think about it and they distribute by accident two $300,000. You know, they're going to be liable for that. Talk a bit about is there insurance coverage that covers mistakes that the administrator might make?

11:22 Sure, and insurance is and bonds for professional fiduciaries, many states like Florida for an instance has a pretty prominent professional fiduciary program and they require that you obtain an annual bond for that fiduciary position. And the errors and omissions insurance will cover a lot of the same things that a probate bond would cover, a surety bond, but for professionals, attorneys for instance, you know, they're usually required to have E&O or professional liability, but in some states like Ohio for instance, that's completely optional. An attorney is not required to have any E&O, and it's available, but it's not required. We just had a fairly large bond, I think it was it was over 10 I think it was $12 million bond, and the attorney was the fiduciary, but the attorney did not have that E&O insurance. So,

12:19 Right. You know, they're not in violation of anything as far as the client goes, but the bond underwriter said that they need to get their E&O insurance before they'd approve the bond. And that

12:28 You know, I had a I'm sorry. I had a I had a great case that came to me as a real estate agent, and fiduciary referred to me. It was a $40 million case, and he had errors and omissions, I want to say $2 million or $5 million. You know, a reasonable policy, but he had to go out and get more insurance to cover himself as well as to get the bond company satisfied cuz he didn't have he didn't have $40 million in net worth, he didn't have $40 million in insurance. He probably wouldn't otherwise have needed it. And that's one of the things and it costs money. It's you know, it's not cheap to get these policies, and so when people you know, look at the fees and the expenses and commissions, part of it is to cover these things so that when there's problems, the customer's protected or the estate's protected.

13:11 Yeah, and that's the other thing. If there was a bond claim, and the person the fiduciary had E&O or professional liability, that insurance could potentially pay for that loss.

13:21 Right. That would ordinarily be falling on the fiduciary. So, that's exactly what it is. One of the tools I've used in helping customers I've had customers come to me either proper or with an attorney who's not very experienced and say, you know, we got ourselves approved in court and the problem is I you know, I can't get bonded. For whatever reason they have credit issues or financial issues or whatever it might be. And there is a program that I'm aware of where you can bind them if the if the attorney commits to co-signing on all the checks for the estate. Now, most attorneys when hear that don't want to get involved cuz they're concerned about being liable and partially they don't really know how to control that. There are a handful that are really sharp and who know what to do. They know a bank they want to work with that's going to protect them and as a result, they're offering their client a higher level of service, I think, or getting better results. Talk a bit about programs that allow attorneys to co-sign or I'm not sure what the exact terminology would be to help their client get bondable to move things forward.

14:26 Sure, and that's where some courts will actually order that as well. So, it could have come from either the bonding company or the court. And that is simply where you have a an additional party and a lot of times it is the attorney. It could sometimes be on occasion a co-signer, although co-signers aren't usually accepted for probate. But it's essentially a double check. So, there's not just one person on the hook, but there's that basically means there's two people to come back to that's going to answer for that. But the most critical part and I really can't emphasize it enough is the attorney is really the cornerstone. So, the a lot of a lot of folks call and they present it to me almost as if having the attorney is some wasteful expense.

15:12 Right. And it's really not wasteful and there's two sides to that is one is as important to protect that fiduciary, but number two, the fiduciary should be thankful that there's funds in the estate to justify that attorney or to justify that bond.

15:29 Right. One of the one of the things that often I'm helping attorneys as they are in these situations is finding the banker that will support it both from a security point of view and from a bond access point of view and I just going to shout American Business Bank is a bank I've worked with since they were founded. I know the president and all the key executives. And the beauty of them is they clear all their checks at one spot downtown LA. It's in a secure building, second floor. Versus you know going to Wells Fargo branch and cashing a check on a on a probate estate, you're much likely to have the bank make an error and pay out a check. Versus if you have a and there's several other banks set the same way to really protect the attorney, protect the fiduciaries, protect the estate. So take a look at that bank. But if you don't have such a bank, I'd be glad to make an introduction to American Business Bank who does here in LA and does a really good job in the area. So let's talk a bit about your business development process. Probate courtbond.com is a fancy website, but I imagine it takes more than just putting up a website to get business. Talk a bit about you know share with our real estate agents who are looking to develop business with attorneys. What's the process you use to build your business or what are things that you think that real estate agents can do to improve their referral business from professional attorneys in the probate space?

16:50 Sure, absolutely Bill and attorneys, you know, our marketing really is focused on helping everyone in the process. So we're really about education. I did I don't know if I can show you here. I wrote a book on probate bonds. So the whole book is only about probate and we really try to give attorneys and consumers tools that they can use to help in any situation. And for example, I wanted to mention to you Bill I also saw another gentleman was on you had on from jet insurance and jet is a wonderful carrier. I want to mention and plug them a little bit.

17:28 Nice. They are a great carrier and you know, honestly, we place business with jet ourselves. So jet is a direct writing carrier and we do place business with them and it is through managing general agents or that sort of thing. But we try to offer those different options. So when I mentioned before we're independent agents, we can access jet or you know, any company that could be necessary to underwrite a bond and that's one of the big tools for an attorney.

17:58 Right. When they come to probate court bond that is like the start and the finish. So when I'm done with the bond, we actually started I actually started a new promotion where if we're not able to get you approved for a bond and you go get it somewhere else. We're going to send you a free lunch. So somebody you know, somebody does not get approved through us and you know, at the end of the day we say hey, you're going to need to find a different applicant all together and you know, then we further that hey, we'll buy you lunch if we're not able to get it and somebody else can.

18:30 Wow. Yeah. But some of the other things we do for attorneys is we're really emphasizing now pre-application for attorneys. So we have a PDF form where a lot of bonding companies you can only apply on their website. On ours, we actually have a PDF form that an attorney can print off and include in their intake packets. And that is

18:55 Why would they not? Why would they not collect the info and have the application already pre-started so the customer has less work to do to speed the process up. I don't understand that. I've seen that seen a attorney did do that. I thought that's such a smart idea.

19:09 Not only that is an attorney who checks that bondability before they even file is going to save the client time and money in a bad surprise in the middle.

19:21 Right. So, it's just something where not only are you seeing if they're approved for the bond, but it's almost like a free background check for their administrator or their executor.

19:30 Right. So, if the bonding company comes back to the attorney at the front of the case before a bond is even ordered, and they say, "Hey, you know, this person has three felonies, and they have a 429 credit score." You know, the attorney might think twice about even working further with that applicant because they're just not qualified.

19:48 Right. And that's a completely free feedback or service from the bonding company. Nice. Nice. Well, look, Phil, I know you're a just a fountain of information, and I appreciate you coming on sharing information about bonds. I think for anybody who's interested, particularly if you're an attorney and or a client looking to get a bond, if you look at probatecourtbond.com, or website, the top right corner is apply now, and you go on there, you can start the process online if you want to. You can get instant pricing, you can apply online, you can issue it, get it issued, and it's a fantastic opportunity. If you're a professional in the field, and you're looking to develop a relationship with Phil Peverini, he's a probate bond specialist, probate bond court dot bonds website, [phone number], and I just want to thank you again, Phil, for coming on sharing with us kind of the It In some ways, it's a very for, you know, every almost every single probate has a bond. And you can't get the letters if you need a bond without the bond, and yet it's an overlooked piece of the puzzle that if I was an attorney, or for me as a real estate broker in the space, I want to know who can get the job done for our clients, and this is really important. So, I appreciate you coming on here and sharing with us and educating us today. Thank you so much.

20:59 Yeah, absolutely, Bill. I did want to end with one final item I wanted to mention to you we get off. We have a brand new website that came online a couple weeks ago. It's called findestateplanning.org. And we're really excited about this. This is the most exciting project that we've released and we're always coming up with new things, but it's such a great resource that it's free for everyone. We're not selling anything on it and it's great for not only consumers, but also great for attorneys. So, it's this site is two things. The first is a free attorney directory. So, consumers can go on here and they can search by zip code. They can display a map of proximity. And that sort of thing to find the actual attorneys. But, the second thing and probably the more the more exciting thing about it is the estate planning event calendar. And that is where attorneys can import their whole calendar, so they don't have to manually enter in their events.

21:58 Nice. But, we can take their calendar and automatically push those out and actually create an RSS feed. The attorney can use on their own website and we can we can white label all of this. So, that's the other good thing. So, if Bill Gross wants to put this on a you know, create a Bill Gross estate planning workshop calendar site. We can do that. So, I just wanted to mention that new site that we just released and we welcome anybody that wants to participate. We'll help white label that.

22:28 Okay. Well, let's findestateplanning.org. Great a great tool. I'm going to play with it when we're done here. I can't I don't want to play with it while we're talking. It's that would be rude, but I'll play with it when we're done. Phil, you're constant source of information in this business and key part on the Probate Bond. Thank you so much for joining us today and making your time available. We appreciate you.

22:45 Yeah, thanks for having me, Bill. Have a great afternoon. And for the rest of you, this is Probate Weekly. We get together every week usually with probate attorneys, whether it be litigators, administrators, or estate planning attorneys to avoid probate. But, I also like to get the vendors in, which help all of us, the attorneys as well as real estate agents, I think solve client problems and bring resources to our clients. So, I hope you found it interesting. I'd love to get your comments, your feedback. Let me know. I'm @billgrossprobate on social media or put comments in whatever social media you're watching this on. If I can help in any way, please reach out. As always, make today your best day ever. Thanks so much.