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By: Scott Grossman on December 7th, 2023

What is a Fiduciary Duty? 

In California, a fiduciary duty is a legal concept that imposes a high standard of trust and loyalty on individuals with unique relationships with others. These individuals, known as fiduciaries, must act in the best interests of the parties they represent or serve. Fiduciary duties are an essential cornerstone of the legal system, designed to protect individuals from potential breaches of trust.

Under California law, a fiduciary duty arises whenever one party places extraordinary confidence, trust, and reliance on another individual to act in their best interests. This relationship is characterized by a higher level of responsibility and a duty to act honestly, with utmost good faith and loyalty. Fiduciaries are expected to prioritize the interests of those they serve above their own, making decisions that are in the best interests of their clients or beneficiaries.

It is important to note that fiduciary duty extends to various relationships.

Understanding the Obligations of a Fiduciary Duty

When a person assumes a fiduciary role in California, they are entrusted with specific responsibilities and obligations. These duties are legally enforceable and can be subject to legal action if violated. Fiduciaries must understand their obligations and fulfill them diligently.

The specific duties of a fiduciary may vary depending on the nature of the relationship and the context in which the fiduciary duty arises. However, some fundamental duties are generally expected of all fiduciaries in California:

Duty of Loyalty

Loyalty is one of the most essential obligations of a fiduciary. It requires the fiduciary to act in the best interests of the party they represent and to avoid any conflicts of interest. Fiduciaries must place the interests of their clients or beneficiaries above their own and avoid any actions that could compromise their loyalty.

For example, suppose an attorney represents a client in a legal matter. In that case, the attorney must act solely in the client’s best interests, avoiding any actions that would benefit the attorney personally or lead to a conflict of interest.

Duty of Care

Fiduciaries also have a duty of care, which requires them to exercise reasonable care, skill, and diligence in fulfilling their responsibilities. They should use their skills, knowledge, and expertise to make informed decisions and act in the best interests of those they serve.

For instance, a trustee managing a trust has a duty of care to prudently invest and protect the trust’s assets. They must make informed investment decisions and act with the same care and diligence that a prudent person would exercise in managing their assets.

Duty of Disclosure

Fiduciaries must provide complete and accurate disclosure of any information that may impact the interests of those they serve. This duty ensures transparency and allows the parties involved to make informed decisions. Fiduciaries must not withhold or misrepresent any material information that could affect their clients’ or beneficiaries’ rights or interests.

For example, an investment advisor has a duty of disclosure to fully inform their clients about any potential risks associated with specific investment options and to disclose any conflicts of interest that may arise.

Duty to Account

Fiduciaries also must maintain accurate and detailed records of their actions, decisions, and any transactions involved in their fiduciary role. They must provide a comprehensive account of their activities and be prepared to provide these records to the parties they serve upon request.

For instance, a personal representative handling the estate of a deceased person must account for all the assets, debts, and distributions made from the estate, providing a clear and transparent record of their administration.

Duty of Confidentiality

Further, fiduciaries must maintain the confidentiality of any information communicated to them by the parties they serve unless disclosure is necessary to fulfill their responsibilities or mandated by law. This duty ensures the trust and privacy of the parties involved.

For example, an attorney must maintain client confidentiality and not disclose confidential information the client shares unless authorized or required by law. 

If you want to learn more about trustee’s fiduciary duties, check out our article “20 ways your trustee can be breaching their fiduciary duties. ” The article is a comprehensive guide into the trustee’s responsibility as a fiduciary and their obligations to the beneficiary.

What Can a Trustee Not Do?

A trustee has several responsibilities and fiduciary duties that the trustee must uphold. Some of the things a trustee cannot do include:

Breach of Fiduciary Duty: A trustee cannot breach their fiduciary duty or ignore the terms of the trust. 

Self-Dealing: A trustee cannot use the trust for personal gain or benefit themselves at the expense of the beneficiaries. 

Neglect or Mismanage Trust Assets: A trustee must manage trust assets carefully, including diversifying investments and safeguarding assets. 

Fail to Communicate with Beneficiaries: A trustee must regularly communicate with the beneficiaries about the trust’s activities, investments, and distributions. 

Disclose Confidential Information: A trustee must keep confidential information about the trust and beneficiaries private and cannot disclose it for personal gain. 

These are just a few examples of what a trustee cannot do. If trustees breach these limitations, they could face legal action and removal from their position. Moreover, the beneficiaries may be eligible for damages if they suffer financial harm due to the trustee’s activities. 

Consequences of Breaching a Fiduciary or Trustee Duty

Further, when trustees breach their duties, they may face various consequences. This includes:

  1. Personal Liability: The trustee may be liable for any losses the trust beneficiaries suffer due to the breach. 
  2. Removal from Position: Beneficiaries may be able to have the trustee removed from their position and replaced with another trustee. 
  3. Monetary and Non-Monetary Damages: A breach of trust can lead to financial or non-monetary damages for the beneficiaries. 
  4. Legal Action: The trustee could face legal action, court expenses, and attorney fees. 

Some common examples of trustee breaches of duty include self-dealing, negligence, imprudent investments, and failure to distribute trust income. Trustees need to fulfill their responsibilities and act in the best interests of the beneficiaries to avoid these consequences. 

More on your Trustee Breaching their Trustee Duties 

Need more information on Trust Litigation? Or, to ensure they are following their trustee’s duties or even removing a trustee, check out our complete overview of California Trust Litigation, available on our website. If you have more questions about your rights as a Beneficiary and what you should know moving forward. 

To learn more about the nuances of trust property and if they are being managed effectively. Or if the trustee breached a fiduciary duty. Check out the following articles listed below. 

The Challenges of “Selling a House as a Trustee” and abiding by the fiduciary duty. Can a Trustee Sell Trust Property Without Beneficiaries’ Approval?” “What Are The Common Mistakes Trustees Make When Selling Trust Property?” 

If you are still having some trouble, have any more questions, or want to talk to someone about your case, please give us a call or fill out our Get Help Now form below.

It’s best to reach out as soon as possible. The longer you take, the more damage your trust could take. Please call us at (888) 443-6590, and we would be more than happy to see if we can assist you.