Breach of Fiduciary Duty In Trust Matters

What does fiduciary responsibility mean?

Fiduciary duty is a legal responsibility for a person in a position of trust and confidence to act in the best interest of another party. Fiduciaries have to meet high standards in fulfilling their duties. When a trustee, guardian, or estate executor accepts their appointment, they accept the legal responsibility for the following duties:

1. Loyalty: Loyalty means prioritizing beneficiaries’ interests above everyone else, including their own.
2. Good faith: Good faith means acting within the confines of the law to promote beneficiaries’ interests. The fiduciary should not act outside legal constraints and jeopardize their client’s assets and properties.
3. Disclosure: Fiduciaries must be great record keepers. They must maintain accurate and up-to-date records of assets and transactions and share them with beneficiaries.
4. Impartiality: A fiduciary must not get drunk on power and attempt to use their position to punish beneficiaries or reward beneficiaries.
5. Prudence: Prudence means not acting recklessly when making investment decisions concerning money, property, and other assets in their care. Their investment decisions must make sense for the trust or estate objective and risk tolerance.
6. Care: Fiduciaries must pay attention to the properties in their care, leading to loss through theft, misappropriation, or excess depreciation.

Principals are the people who entrust fiduciaries with taking care of their properties and assets. These include estate owners and their heirs or beneficiaries. Fiduciaries must subordinate their interest to that of their principal.

What happens if a fiduciary duty is breached?

If a fiduciary is found to be in breach of their legal responsibility, they may be brought up on civil or criminal charges and could even lose their credentials. If they are engaged in illegal activity, the consequences could include going to prison.

Cases of breach of fiduciary are prevalent in the US, including California. According to a snapshot of information the National Bureau of Economic Research disseminated, at least one in every five trust and estate litigation cases involves allegations of fiduciary breach.

If you have reason to suspect your trustee, executor, or any other fiduciary acting in bad faith, contact an attorney experienced in the matter immediately. A trust and estate attorney will help you protect your rights and interests when dealing with a dishonest or incompetent trustee.

Common Forms of Breach of Fiduciary in Trust and Estate Law

As mentioned, fiduciary breach is not an alien trust and estate law concept. It happens more than you think. In some cases, it’s due to a poor choice of fiduciary. In contrast, other cases involve a change in circumstances beyond which the settlor or estate owner anticipated causing a significant change in the fiduciary’s behavior.

Common types of breach of fiduciary duty include:

1. Self-dealing: Self-dealing is the most recognizable breach of trust on this side of the world. It entails failure to disclose a conflict of interest when transacting on behalf of a trust or estate. It can be impossible for a fiduciary to look out for the beneficiaries’ interests in a transaction where their interest is at stake. It’s a moral conflict that often results in beneficiaries’ interest ending up under the bus while the fiduciary looks out for themself. Self-dealing is an illegal act that can be prosecuted.
2. Misappropriation of principal’s assets: Misappropriation of assets under one’s care is another form of self-dealing. This is where the fiduciary uses the assets in their trust for personal projects. For example, they may take out a loan and fail to return it or give it back minus accrued interest. Some debt-ridden fiduciaries may even try to collude with creditors to get beneficiaries to agree to trust amendments allowing the creditor access to the assets. Misappropriation also happens when fiduciaries use estate properties such as cars and equipment without paying. Some may also falsify an estate’s accounting records to hide assets. Monitoring your trusts or estate’s assets and transactions regularly is always wise.
3. Excessive fees: Trust and estate fiduciaries such as guardians, trustees, and executors can access accounts to charge for their services. However, they must draw at most the agreed-upon amount. A fiduciary breach comprising theft happens when the individual takes more than they were allocated. This may result in a significant loss of estate assets, jeopardizing the inheritance or investment.
4. Commingling: Commingling is when the fiduciary mixes their personal assets with those of the trust or estate under their care, intentionally or inadvertently leading to the loss of principal money, property, or other assets.
5. Reckless investments: All investment decisions must align with the estate or trust objective and risk tolerance. A fiduciary breach occurs when the fiduciary fails to exercise care when investing assets under their care, intentionally resulting in losses.
6. Withholding benefits: Withholding benefits is where fiduciaries develop an air of self-importance and exploit their position to punish or reward beneficiaries as they please. For example, they may withhold assets from beneficiaries they feel offended about or use estate or trust assets to reward beneficiaries they feel some allegiance towards. It’s all illegal and can be litigated.
7. Negligence: Negligence is when a fiduciary doesn’t care about the properties, investments and estates under their care, leaving them to depreciate or disappear via theft and pilferage. It includes failure to track down, inventory, and value a deceased’s assets, leading to losses. Fiduciary negligence is litigable under good old malpractice laws, leading to monetary compensation and criminal charges.
8. Failure to disclose: Failure to disclose is where the fiduciary provides an inadequate accounting of the assets under their care or provides none. There’s no reason why they should do that. You are owed a comprehensive accounting of the assets in the trust or your estate and every transaction performed on your behalf. Failure to disclose is typically a sign of wrongdoing. Perhaps they are trying to hide blunders or theft.

How to Prove a Breach of Fiduciary Duty

It’s relatively straightforward to prove a breach of fiduciary duty when certain signs and behaviors are present. Common signs of fiduciary breach in trust and estate law include:

• Delays in benefit distributions without reasonable explanation
• Unexplained changes in assets under their care, including abnormal transfers, sudden or patterned losses, etc.
• Refusal or failure to provide a detailed accounting of assets and transactions, including rescheduling information dissemination, outright denial, or failure to respond to requests
• Unnecessary shifts in investment strategies, including outright gambling with the assets under their care
• Depreciation or loss of investment value
• Conflict of interest

If you spot signs of fiduciary breach, it’s important to collect evidence such as sketchy financial records and communications. You will need this evidence during the initial consultation with an attorney to determine whether you have a case.

It’s crucial to talk to an experienced estate and trust attorney as soon as possible to explore the best legal options for protecting your interests and rights. Only individuals owed a fiduciary duty, such as heirs and beneficiaries, can sue for a breach. Your attorney will assist in gathering and organizing evidence and pursuing legal action, including negotiations and court trials.

Additionally, working with trustworthy family members and friends can be beneficial. Share your suspicions with individuals in your circle who can help with evidence gathering and provide support during this process.

Consequences of Fiduciary Breach

Falling short of the primary expectations of fiduciary duty can lead to serious legal consequences for the fiduciary. The court may impose various remedies to penalize dishonest or negligent fiduciaries and protect the beneficiary’s interests and rights. Common remedies for breach of fiduciary duty include:

• Suspension or removal of the fiduciary from their position
• Surcharges to compensate for the loss caused by their actions
• Punitive damages to punish the fiduciary for their negligent or dishonest acts
• Disgorgement to return the profits earned through misconduct to beneficiaries

Consult with a Trust and Estate Attorney

If you suspect someone entrusted with caring for your funds, property, or other assets is in breach of their fiduciary duty, it’s crucial to take immediate action to protect your interests and rights. A California trust and estate attorney can help protect your assets by pursuing legal action against the fiduciary.

If you have any questions or concerns, please schedule a free consultation on our website. We are experienced trust and real estate attorneys in California with numerous breach of fiduciary cases under our belt. Rest assured, we will assist you in finding a solution to your predicament.