What Constitutes a Breach of Fiduciary Duty?
The fiduciary or trustee duty holds immense significance in trust and probate law. Fiduciary duty is a legal obligation that requires a person, a fiduciary, to act in the best interests of another party, the beneficiary. The fiduciary duty forms the foundation of trust and confidence between the parties involved and ensures that the fiduciary carries out their responsibilities with utmost care, loyalty, and honesty.
Fiduciary Duty: Understanding the Basics
Defining fiduciary duty involves understanding the responsibilities and obligations imposed upon the fiduciary. It entails a duty of care, a duty of loyalty, and the duty to act in good faith. Let’s delve deeper into each of these aspects:
Duty of Care
The duty of care requires the fiduciary to exercise reasonable skill, diligence, and prudence when making decisions that affect the beneficiary’s interests. That means the fiduciary must always act with the care and prudence.
Duty of Loyalty
The duty of loyalty demands that the fiduciary avoids conflicts of interest and prioritizes the beneficiary’s interests over their own. Fiduciaries must act in a manner that is without bias. This ensure that any transactions or decisions are made solely in the best interests of the beneficiary.
Duty to Act in Good Faith
The duty to act in good faith requires the fiduciary to act honestly and responsibly and refrain from engaging in fraudulent or deceptive behavior.
Breach of Fiduciary Duty
When a trustee fails to fulfill their obligations under the fiduciary duty, it is considered a breach of a trustee duty. Breaches can occur in various ways and may include:
Negligence
One typical example of a breach of fiduciary duty is negligence. Suppose a fiduciary fails to exercise the necessary level of care, skill, or prudence expected of them and causes harm to the beneficiary. In that case, it can be considered a breach. For instance, if a trustee invests trust funds in a highly risky venture without proper due diligence, resulting in significant losses for the beneficiary, it would be a breach of fiduciary duty.
Conflicts of Interest
Conflicts of interest can also lead to breaches of fiduciary duty. A fiduciary must always act in the beneficiary’s best interests and avoid any personal or financial conflicts that might compromise their ability to do so. If a fiduciary enters into a transaction that benefits them personally at the beneficiary’s expense, it would constitute a breach.
Self-Dealing
Self-dealing refers to situations where a fiduciary utilizes their position to obtain personal advantages, often at the beneficiary’s expense. That can include misappropriating funds, using trust property for personal gain, or engaging in transactions that solely benefit the fiduciary.
Violation of Trust Terms
If a fiduciary fails to adhere to the terms outlined in the trust agreement, it can be considered a breach of fiduciary duty. A breach can involve a multitude of things. That includes improperly distributing trust assets, failing to make required distributions, or not fulfilling any instructions or provisions outlined in the trust.
Trustee Duty and Duty of Care
While fiduciary duty encompasses various aspects, it is worth exploring the trustee’s duty of care in more detail. The duty of care requires fiduciaries to exercise caution, skill, and prudence in managing the affairs and assets of the beneficiary. Failing to meet this duty can have serious consequences.
Damages from Breach of Fiduciary Duty
When a breach of fiduciary duty occurs, the affected beneficiary may be entitled to seek damages. The types of damages that can be pursued depend on the nature of the breach and the resulting harm. Some common forms of damage include:
Compensatory Damages
Compensatory damages aim to reimburse the beneficiary for any financial losses from the breach. These may include loss of income, depletion of trust assets, or any other measurable financial harm.
Punitive Damages
In extreme misconduct or intentional wrongdoing, punitive damages are awarded in addition to compensatory damages. Punitive damages punish the fiduciary for their breach and discourage similar behavior in the future.
Beneficiary Rights
If you would still like more information on Trust Litigation and your rights as a beneficiary, read our article “20 ways your Trustee can be breaching their fiduciary duties,” or check out our complete Overview of California Trust Litigation on our website. If you have more questions about your beneficiary rights and what you should know moving forward.
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