A fiduciary is someone a person entrusts with managing their assets and affairs. In estate planning, this is typically the executor or trustee, the person designated to settle the person’s estate and fulfill their wishes according to their will or estate plan.
The relationship between the grantor or owner of the trust, any beneficiary, and the fiduciary is one of trust. The law recognizes the importance of this relationship. It expects the fiduciary to always act in the best interest of the beneficiary.
What is the duty?
A fiduciary duty requires the fiduciary, whether they are the executor or trustee, to act in the beneficiary’s best interests. The law expects the fiduciary to exercise care, loyalty and good faith toward any existing beneficiary.
When does a breach happen?
A breach of duty occurs when the fiduciary fails to fulfill their legal obligations or violates their responsibilities toward the beneficiaries. There are several ways in which this can happen. For example, a fiduciary may breach their duty by:
Self-dealing
This type of breach occurs when the fiduciary, executor, or trustee uses their position to benefit themselves instead of the beneficiary. For example, if a trustee uses funds from a trust for personal gain instead of using them for its beneficiary, they have breached their duty.
Conflict of interest
This happens when a fiduciary has competing interests that interfere with their ability to act in the beneficiary’s best interests. While less common, an example of this breach would be an attorney representing two clients with opposing interests in the same matter.
Negligence
A fiduciary is negligent when they fail to exercise the appropriate level of care and diligence when fulfilling their duties. For example, a trustee who fails to responsibly manage trust assets may be guilty of negligence.
Misrepresentation
This happens when the fiduciary makes material (significant) misstatements or omissions that mislead the beneficiary. For example, a lawyer who fails to disclose a conflict of interest may be guilty of misrepresentation.
Consequences of a breach
A breach of fiduciary duty carries serious consequences for the fiduciary and the beneficiary. For example, the beneficiary can suffer a significant economic loss due to the fiduciary’s breach, and the fiduciary may face serious legal charges.
The beneficiary can sue the fiduciary in civil and criminal court, depending on the specifics of the case, and the fiduciary may be required to pay damages and restitution to the beneficiary. In other words, it is a serious unlawful act with severe consequences.
When fiduciaries breach their duty, they fail to act in the beneficiary’s best interests or engage in actions that are not in line with their legal responsibilities.
