What is a Fiduciary?
The law imposes a high standard of care and trust when managing someone else’s affairs or assets. This responsibility is known as a fiduciary duty. But what exactly does it mean to be a fiduciary? In this article, we will delve into the definition of a fiduciary, explore the differences between a fiduciary and a trustee, discuss the consequences of breaching fiduciary duty, and examine the responsibilities of a trustee.
A fiduciary is an individual or entity in a position of trust and confidence who is legally obligated to act in the best interests of another party. This legal relationship is often established through a formal agreement or appointment, such as a power of attorney, a trust instrument, or a business partnership agreement.
The fiduciary’s duty is grounded in loyalty, good faith, and utmost care. They must prioritize the other party’s interests above their own and exercise their powers and discretion with diligence and skill.
One key aspect of being a fiduciary is avoiding any conflicts of interest. A fiduciary should not engage in any actions that could compromise their ability to act solely in the other party’s best interests.
Fiduciary vs Trustee
While the terms “fiduciary” and “trustee” are often used interchangeably, there are some subtle differences between the two.
A fiduciary is a broader concept encompassing any individual or entity who owes a fiduciary duty. It can include professionals such as lawyers, financial advisors, and accountants, as well as individuals who have been designated as fiduciaries in specific situations.
On the other hand, a trustee is a specific type of fiduciary appointed to manage and administer assets held in a trust. A trust is a legal arrangement whereby a person (the settlor or grantor) transfers assets to a trustee who holds and manages them to benefit the beneficiaries.
While all trustees are fiduciaries, not all fiduciaries are trustees. Trustees have additional responsibilities and obligations specific to the administration of a trust. That includes distributing assets according to the terms of the trust, making investment decisions, and keeping accurate records.
It is important to note that trustees are held to a higher standard of care and responsibility than other fiduciaries. That is because they are directly responsible for managing and safeguarding the trust’s assets.
Breach of Fiduciary Duty
When a fiduciary fails to fulfill their duties or acts in a manner that is contrary to the best interests of the other party, it is considered a breach of fiduciary duty. This breach can occur due to negligence, intentional misconduct, or conflicts of interest.
If a breach of fiduciary duty occurs, the affected party may have legal remedies available to seek compensation or other forms of relief. Common examples of breaches of fiduciary duty include:
- Misusing funds
- Self-dealing
- Failing to disclose conflicts of interest
- Making decisions that benefit the fiduciary at the other party’s expense
Consulting with a qualified attorney would be best if you think a trustee has violated your rights as a beneficiary.
Suppose you want more information on a breach of fiduciary duties. Our article ” 20 ways your trustee can be breaching their fiduciary duties” will help inform you of your rights.
Trustee Duties
As mentioned earlier, trustees have specific duties and responsibilities related to the administration of a trust. Let’s take a closer look at some of these duties:
1. Duty of Loyalty: Trustees must act solely in the best interests of the beneficiaries and avoid any conflicts of interest. They should not engage in self-dealing or use trust assets for their benefit.
2. Duty to Preserve and Protect the Trust Assets: Trustees must safeguard and protect the trust’s assets. That may include managing investments, maintaining property, and ensuring adequate insurance coverage.
3. Duty to Administer the Trust by its Terms: Trustees must adhere to the instructions and provisions outlined in the trust document. They should distribute assets to beneficiaries as directed and make decisions that align with the settlor’s intentions.
4. Duty to Exercise Reasonable Skill and Care: Trustees are expected to exercise prudence and diligence when making decisions on behalf of the trust. They should seek professional advice and keep accurate records of their actions.
5. Duty of Impartiality: If multiple beneficiaries exist, trustees must act impartially and avoid favoritism or discrimination. They should treat all beneficiaries fairly and make decisions that are in the best interests of the trust as a whole.
Fiduciary Responsibility
These are just a few examples of the duties trustees owe to beneficiaries. The specific responsibilities may vary depending on the terms of the trust and applicable laws.
Further, being a fiduciary is a significant responsibility that requires trust, skill, and unwavering loyalty. Whether you are dealing with a fiduciary or considering taking on this role, it is crucial to understand the legal duties and obligations. By fulfilling these duties with utmost care and diligence, fiduciaries can ensure the protection and preservation of the assets and interests entrusted to them.
More on your Trustee breaching their fiduciary duties
If you would still like more information on trust litigation and 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,
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.
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.