The Department of Veterans Affairs (commonly known as the VA) provides certain financial benefits to veterans of the U.S. Armed Forces and/or their surviving family members. Sometimes, if the beneficiary is unable to effectively manage their own benefits, the VA will appoint a fiduciary to manage the funds and provide for the beneficiary’s care.
To ensure that these fiduciaries fulfill their obligation to beneficiaries, the government requires VA fiduciaries to obtain veterans’ administration fiduciary bonds. We’ll discuss what these surety bonds do, who needs to obtain them, and what they typically cost. First, however, let’s review the essential responsibilities of a VA fiduciary.
What Does a Veterans Administration Fiduciary Do? A person who has been awarded VA benefits (referred to as a beneficiary) can be declared incompetent by the VA if they lack the capacity to care for themselves and manage their own financial affairs. This can happen for a variety of reasons, including:
- Physical injury
- Mental illness
- Advanced age
- Being under 18 years old
In such cases, the VA will require the appointment of a fiduciary to manage the beneficiary’s financial well-being and oversee the distribution of VA benefits.
Most often, a fiduciary is a family member or loved one of the beneficiaries. However, the veteran may request another individual or organization as a fiduciary, or the VA may appoint one. After a process of intensive vetting by the VA, the fiduciary will be appointed to their position.
The major responsibilities of a fiduciary include:
- Using the beneficiary’s VA funds to pay for the living expenses of the beneficiary and their dependents (such as spouses or children) Protecting the beneficiary’s VA funds from creditor claims
- Coordinating the beneficiary’s healthcare and insurance
- Keeping detailed records of how the beneficiary’s VA funds are spent
- Filing accounting reports with the VA
See the VA Fiduciary Guide for a complete explanation of a VA fiduciary’s responsibilities and requirements.
Because of the responsibilities that a VA fiduciary takes on for the physical and financial well-being of a beneficiary, the VA may require a financial guarantee that the fiduciary will fulfill their obligations. That guarantee comes in the form of a VA fiduciary surety bond.
The Basics of VA Fiduciary Bonds
A VA fiduciary bond (also known as a VA custodian bond) is a type of surety bond. What is a surety bond? Essentially, it’s a three-party contract that provides a financial guarantee of an obligation that one party (called the principal) owes to another (called the obligee). A neutral third party provides the guarantee.
- The principal is the VA fiduciary who is required to obtain the bond
- The obligee is the Veterans Administration
- The surety is a business that provides surety bonds, generally an insurance company
VA fiduciary bonds protect VA beneficiaries and their dependents in the event that a fiduciary mismanages a beneficiary’s finances (either intentionally or unintentionally). If the beneficiary, their dependents, or the VA believes mismanagement has occurred, they may file a claim against the fiduciary’s surety bond. The fiduciary is responsible for paying back any funds that the surety pays to the filer of a valid claim.
Not all VA fiduciaries are required to obtain surety bonds. Commonly exempt fiduciaries include:
- The beneficiary’s spouse
- A bank with trust powers
- A fiduciary appointed by a court
- A fiduciary located in Puerto Rico, Guam, or another U.S. territory
- A fiduciary managing small amounts of money (typically under $20,000)
How Much Does a VA Fiduciary Bond Cost?
The surety bond’s coverage amount, or the maximum amount that it will pay to the filer of a valid claim, determines the premium the fiduciary pays for the surety bond. Typically, the coverage amount (also known as the penalty sum) will equal the total amount of funds managed, plus the beneficiary’s anticipated annual net income from VA benefits.
To obtain the bond, the fiduciary will pay a premium that equals a small percentage (typically one to five percent) of the penalty sum. Note that the VA allows fiduciaries to deduct the surety bond cost from the beneficiary’s VA funds.
Several other factors affect the premium rate for a VA fiduciary bond, including the principal’s credit score, financial history, and criminal record (if any). Although surety bond premiums are usually higher for principals with low credit scores, it’s still possible to get an affordable bond premium—see our guide to getting a surety bond with bad credit.
The process of applying for a veteran’s administration fiduciary bond through Surety Bonds Direct is easy and takes just a few minutes. We offer free no-obligation VA fiduciary surety bond quotes, and our direct-to-customer pricing means that our premiums are lower than other surety bond brokers. For more information, call 1-800-608-9950 to speak to our surety bond experts today.
