Glossary of Business Credit Terms

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Fiduciary Bond

What Is A Fiduciary Bond?

A fiduciary is a person that manages the property or money of others. It could be the administrator of an estate or a trustee of a fund. Fiduciaries are usually in a position of trust as they have direct access to people’s money and property. In cases like this, the faithful performance of the fiduciaries is of paramount importance, hence the need for the fiduciary bond. A fiduciary bond is one that is taken by a fiduciary that ensures his/her faithful performance. This bond protects the people whose property the fiduciaries manage against acts of theft or embezzlement.

How Does A Fiduciary Bond Work?

Suppose a wealthy man became too old to manage his finances and required someone to help him do so. He could appoint someone himself or a court could do that for him. Whoever is appointed becomes a fiduciary in charge of all of the wealthy man’s property and assets. This fiduciary, let’s call him Tom, has access to the wealth and property of the old man and must be trustworthy enough to manage it without the fear of theft or embezzlement.

To ensure this, the fiduciary is required to take out a fiduciary bond. If during the course of his duty money is stolen, embezzled or a deficit is noticed, a claim can be made against Tom’s bond. If this claim is found to be valid then Tom will have to pay financial damages. If Tom cannot pay at the time he is required to, a Surety steps in to pay for Tom, and he must later pay back the Surety.

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