How Serious Is a Breach of Fiduciary Duty?
Losing a loved one is one of life’s most painful experiences. It can be overwhelming to navigate the emotional and practical responsibilities that follow, especially when dealing with their estate matters. As if the grief weren’t enough, you may face trust or probate litigation. This process can feel like an additional burden during an already difficult time. It leads to the question: How serious is a breach of fiduciary duty?
If you are reading this, you may suspect a breach of fiduciary duty in handling your loved one’s estate or trust. That is a serious issue that can have profound legal and financial consequences. The Grossman Law Firm is here to empower you. For over twenty years, TGLF has provided our clients with the knowledge to understand and address breaches of fiduciary duties. This article will break down the concept of fiduciary duty, explain what constitutes a breach, how serious a breach of fiduciary duty is, and offer insight into the steps you can take if you believe such a breach has occurred.
What is a Fiduciary Duty?
A fiduciary duty refers to a legal obligation that one party (the fiduciary) owes to another (the beneficiary) to act in their best interests. In the context of trust and probate law, this duty is fundamental to ensuring that the wishes of the deceased are respected and that the estate or trust is administered fairly and competently.
Fiduciaries are responsible for acting with the highest level of honesty, integrity, and loyalty. They are required to put the interests of the beneficiaries ahead of their own and manage the estate’s assets responsibly. This duty extends to various individuals, including executors, trustees, attorneys, and financial advisors, entrusted with handling someone’s affairs after death.
Suppose a trustee is appointed to manage a trust. Their fiduciary duty includes making investment decisions in the best interests of the beneficiaries, ensuring the trust is administered according to the terms of the trust document, and keeping the beneficiaries informed of relevant developments.
Who Has a Fiduciary Duty?
In trust and probate law, the fiduciary responsibility is not limited to a single individual. Several parties may assume fiduciary roles, each with specific duties and responsibilities. Here are some of the most common fiduciaries involved in the administration of estates and trusts, providing you with a comprehensive understanding of the roles and responsibilities in this complex process:
Executors and Administrators in Probate Cases
When someone passes away, an executor (if there’s a will) or an administrator (if there’s no will) is appointed to oversee the probate process. That involves settling debts, distributing assets, and ensuring the deceased’s wishes are fulfilled as specified in their will. The executor or administrator has a fiduciary duty to act impartially, without favoritism, and to prioritize the interests of the beneficiaries.
Trustees in Trusts
A trustee is responsible for managing the assets placed in a trust according to the terms set by the settlor (the person who created the trust). That includes administering the trust’s assets, making decisions that benefit the beneficiaries, and ensuring the trust is executed as intended. Trustees are held to high standards of loyalty and diligence.
Agents under Powers of Attorney
When a person grants someone a power of attorney (POA), they entrust that individual with the responsibility to make decisions on their behalf—whether for financial, medical, or legal matters. If this individual also manages the decedent’s estate or trust after their death, bound by fiduciary duties.
Financial Advisors, Attorneys, and Other Fiduciaries
Professionals such as financial advisors, attorneys, or accountants may also hold fiduciary duties if they manage or advise on matters related to the estate. These individuals are obligated to provide expert, impartial advice and act in the best interests of the beneficiaries.
What Qualifies as a Breach of Fiduciary Duty?
A breach of fiduciary duty occurs when a fiduciary fails to fulfill their obligations to the beneficiaries or acts in a way that is detrimental to the estate or trust. There are several ways in which a fiduciary may breach their duty, and not all breaches are immediately apparent.
Self-Dealing and Conflict of Interest
One of the most serious breaches of fiduciary duty is self-dealing, where the fiduciary uses their position for personal gain. For example, a trustee may sell estate property to themselves at a below-market price or divert funds for personal use. A fiduciary is legally prohibited from placing their interests above the beneficiaries.
A conflict of interest occurs when a fiduciary has interests that could interfere with their duty to act in the best interests of the beneficiaries. For instance, an executor who also stands to inherit from the estate might make decisions that benefit themselves rather than the other beneficiaries, constituting a breach of duty.
Mismanagement of Assets
A fiduciary is expected to manage the estate or trust’s assets prudently. That means making sound investment decisions, ensuring proper care of physical assets, and safeguarding funds. A breach may occur if the fiduciary makes reckless or negligent decisions, such as failing to invest estate funds wisely or allowing valuable property to depreciate without action.
Failure to Disclose Information
Transparency is a critical aspect of fiduciary responsibility. Beneficiaries must be informed of significant developments, including the status of the estate, any changes in assets, and the fiduciary’s actions. If a fiduciary fails to disclose such information, it could be considered a breach of duty. Withholding information or deliberately deceiving beneficiaries about the estate’s condition can lead to legal consequences.
Negligence or Incompetence
A fiduciary who lacks the necessary expertise or acts carelessly in their role may breach their duties. For instance, an executor who fails to file the necessary legal documents on time or a trustee who neglects to account for estate taxes might be considered negligent in their duties. Fiduciaries must act competently and responsibly in managing the estate or trust.
How Serious Is a Breach of Fiduciary Duty?
The seriousness of a fiduciary duty breach depends on the nature and extent of the violation, but any breach can have significant legal and financial consequences. Fiduciary breaches in trust or probate cases can result in:
Legal Ramifications
The most immediate consequence of a fiduciary breach is potential legal action. Beneficiaries who believe a breach has harmed them may file a lawsuit for breach of fiduciary duty. In California, the court typically examines whether the fiduciary acted following the law and the terms of the trust or will. If a breach of duty is found, the court can take various actions, including removing the fiduciary from their role, ordering them to pay damages, and requiring them to restore the misappropriated funds.
Removal from Position
If the breach is severe, the court may decide to remove the fiduciary from their position and appoint a replacement. That is particularly common in cases of self-dealing or gross mismanagement. Removal is often seen as a necessary step to protect the interests of the beneficiaries. This ensures the proper administration of the estate or trust.
Damages and Restitution
In addition to removal, the fiduciary may be required to pay restitution. That means returning any funds or property misappropriated due to their breach. In some cases, the fiduciary may also be liable for any damages suffered by the beneficiaries due to the violation. This could include lost asset value or financial harm caused by the fiduciary’s misconduct.
Criminal Charges
In the most egregious cases, a breach of fiduciary duty may rise to criminal conduct. For example, embezzlement or fraud by a fiduciary can lead to criminal charges, including fines or imprisonment. That is particularly true if the fiduciary’s actions were intentionally fraudulent or malicious.
The Next Steps for a Fiduciary Breaching Their Duties Are As Follows:
If you believe a fiduciary has breached their duties, timely action is crucial. The following steps outline what to do next:
Immediate Actions a Fiduciary Should Take
Suppose you are a fiduciary facing accusations of breach. In that case, you should immediately consult an experienced attorney to assess the situation and develop a defense. Documenting your actions and seeking legal advice is key to understanding your rights and obligations.
Possible Legal Defenses for Fiduciaries
A fiduciary accused of a breach can defend themselves by demonstrating that they acted in good faith, followed the terms of the trust or will, and took steps to manage the estate responsibly. Oftentimes, a fiduciary may argue that their actions were authorized or that no actual harm occurred.
Remedies for Victims of Fiduciary Breach
The first step is to seek legal counsel for beneficiaries harmed by a breach. A probate attorney can help you understand your options, including negotiating a settlement or filing a formal lawsuit. Remedies may include restitution, fiduciary removal, or other appropriate legal action.
How to Report a Breach of Fiduciary Duty in California
In California, breaches of fiduciary duty can be reported to the probate court, and you may also be able to file a complaint with the California State Bar if the fiduciary is an attorney. A probate or trust litigation attorney can help you navigate this process.
Do you need a probate attorney?
How serious is a breach of fiduciary duty? A breach of fiduciary duty is not a matter to be taken lightly. Suppose you suspect a fiduciary has not fulfilled their obligations or misbehaved. In that case, it’s essential to understand your legal rights to protect the interests of your loved one’s estate. While litigation can be complex and emotional, having the correct information and legal counsel can guide you through this challenging time and ensure that justice is served.
To ensure they follow their fiduciary duties, check out our complete Overview of California Trust Litigation on our website. If you have more questions about your rights as a Beneficiary and what you should know moving forward.
Our law firm specializes in trust and probate law, and we are here to assist trustees in fulfilling their duties and navigating legal complexities.
Our law firm specializes in trust and probate law and is here to help you navigate these complex issues. Contact us today for a consultation. Let us assist you in ensuring your rights are upheld, and your trust is managed prudently. Please call us at (888) 443-6590 or fill out our Get Help Now form below.