Key Takeaways
- A common fiduciary relationship exists between a trustee or executor and the beneficiaries of a trust or estate.
- A breach of fiduciary duty is an action where a trustee or an executor of an estate fails to act in the best interests of the estate or fails to uphold their responsibilities outlined either according to state laws or the terms of a will or trust.
- To prove a breach of fiduciary duty, an individual must establish a fiduciary relationship, gather evidence of the breach, demonstrate that harm was done to an estate, and establish a link between the breach of duty and the tangible damages.
- Skilled legal guidance can be valuable for gathering evidence and building a strong case that proves a breach of fiduciary duty.
Introduction
A fiduciary duty is the legal obligation of a person in a position of trust and confidence to act in the best interests of the person they are representing. In trust or estate administration, a breach of fiduciary duty can occur at the hands of the estate executor or administrator, who is responsible for representing the best interests of the estate and its beneficiaries.
For an act to be considered a breach of fiduciary duty, there must be a fiduciary relationship, proven harm, and an established link between the action and the harm caused. An experienced trust or estate litigation attorney can offer valuable support or guidance in proving breach of fiduciary duty. Understanding the importance of upholding one’s fiduciary duty is crucial for the responsible management of an estate and ensuring the interests of all beneficiaries are upheld.
Understanding Fiduciary Duty
A fiduciary duty is a legal obligation that a trusted individual in a contractual relationship has to act in the best interests of their client. This fiduciary duty is an overarching responsibility that encompasses several other responsibilities, like protecting the assets of an estate and maintaining transparency in all estate transactions.
A fiduciary duty encompasses some of the following elements:
- Duty of loyalty – The fiduciary must exercise loyalty to the trust or estate and act in the best interests of its beneficiaries at all times.
- Duty of care – The fiduciary must demonstrate care and caution when managing estate assets and making decisions, taking care not to risk jeopardizing the estate’s value.
- Duty of impartiality – This duty states that a fiduciary must treat all beneficiaries fairly and equitably while following the terms of the will or trust instrument.
- Duty of good faith – In their role, a fiduciary must act with honesty and fairness with the priority of fulfilling the obligations laid out by the estate.
Common examples of fiduciary relationships include those between a lawyer and a client, a financial advisor and a client, an executor and an estate and its beneficiaries, or a trustee and a trust and its beneficiaries.
What Is a Breach of Fiduciary Duty?
A breach of fiduciary duty is any action where an individual who owes a fiduciary duty fails to fulfill their obligation for any reason, whether required by law or required by the terms of a will or trust instrument.
A breach of fiduciary duty may be either intentional or negligent. For example, an executor could deliberately steal assets, or they could fail to pay estate expenses out of negligence. Still, both would be considered a breach of their duty.
To be considered a breach of fiduciary duty, an action often must have serious impacts on an estate, such as a significant loss in financial value or demonstrable harm to a beneficiary’s inheritance.
A breach of fiduciary duty is a serious issue that can result in significant legal consequences. Most commonly, an individual may be removed from their role. In extreme cases, a fiduciary may be forced to pay damages to the estate or even face criminal charges.
Elements of a Breach of Fiduciary Duty
For a breach of fiduciary duty to have occurred, the alleging party will have to prove the following elements that are required to move forward with a breach of fiduciary duty lawsuit.
Establishing a Fiduciary Relationship
To raise a breach of fiduciary duty lawsuit, the plaintiff must have a fiduciary relationship with the defendant. In other words, not just anybody can bring a lawsuit against the fiduciary. To initiate a lawsuit, an individual must be owed a fiduciary duty by another party.
For example, a creditor cannot bring a breach of fiduciary duty lawsuit against a trustee, even if they believe they are abusing their role. The beneficiaries of an estate and the creator of the estate plan are the individuals at the receiving end of this fiduciary duty, so they are the only individuals who can bring a lawsuit.
Demonstrating the Breach of Duty
Evidence of a breach of fiduciary duty occurring is essential for establishing your case and seeking a resolution in court. The types of evidence necessary to demonstrate your case may vary depending on the nature of the wrongdoing and your specific case.
In breach of fiduciary duty cases, it may be difficult to find a singular smoking gun that shows wrongdoing. Being able to establish multiple pieces of evidence will be crucial for building the strongest case possible and proving your case to the court.
Causation: Linking Breach to Harm
A valid claim of fiduciary duty must also have been linked to some form of harm done to the estate, such as a loss of financial value of the overall estate or a beneficiary losing access to a portion of their inheritance. In other words, you will need to prove that the action taken by the fiduciary directly caused some kind of loss. For example, if you can demonstrate that a fiduciary willingly sold a form of estate property below market value, which resulted in the estate losing potential income, you may be on your way to establishing a substantial case.
Proving Damages Suffered
Finally, a successful breach of fiduciary duty lawsuit will need to prove that tangible damages occurred. Possible examples of damages may include a loss of financial value to the estate, a loss of property, or a beneficiary not receiving their rightful share of an inheritance. To prove damages, you may need to provide a copy of an estate accounting and a copy of the will or trust to highlight any discrepancies between the decedent’s intentions and the actual outcome of estate administration.
Common Forms of Breach of Fiduciary Duty
A breach of fiduciary duty can take many forms, as there are many unfortunate actions a fiduciary can take that could jeopardize the interests of an estate. Below are the most common examples of a breach of fiduciary duty.
Self-Dealing
Self-dealing occurs when a fiduciary takes advantage of their position for personal profit and at the expense of the beneficiaries’ profits and assets. Examples of self-dealing include stealing estate property for their own personal use, whether this includes taking personal property or finances, overpaying themselves fees from the estate, or contracting a personal business to repair estate property at high prices. Self-dealing actively harms the estate by taking away financial resources from the estate and its beneficiaries for the fiduciary’s personal gain.
Conflicts of Interest
A conflict of interest occurs when an executor or administrator uses their role for either their own personal gain or the benefit of a party close to them. For example, if an executor sells a form of estate property to a friend at below market value, this would be considered a conflict of interest, especially as the action would unjustly minimize the financial returns to the estate, diminishing estate value. An estate or trust representative must disclose all conflicts of interest and act with impartiality in managing the estate.
Misuse of Assets
Misusing assets often involves using estate assets for the representative’s own personal gain. However, misuse of assets may also involve irresponsibly or negligently managing assets to the point that it results in losses to the estate. For example, an executor is responsible for managing estate property and ensuring it is appropriately cared for. If the executor neglects to pay property taxes and care for the property, resulting in fees to the estate or reduced property values, this would be a breach of their duties.
Legal Recourse for Breach of Fiduciary Duty
If an executor or trustee is found to have breached their fiduciary duty, by the courts, then beneficiaries of a trust or estate may seek legal recourse.
Types of Legal Remedies
The court may offer a couple of different legal remedies if a fiduciary is found to be liable for a breach of fiduciary duty. The most common legal remedies include:
- Compel to act – In simple cases, a court may simply compel a trustee or executor to act. For example, if an estate executor failed to provide an accounting of the estate to beneficiaries upon request, then the court may compel the executor to do so.
- Fiduciary removal – In more serious cases, the court may order the removal of the executor or trustee from their role. In these instances, often in cases of serious wrongdoing, the individual will be replaced by another person who will be responsible for continuing and completing the estate or trust administration process.
- Damages – If a fiduciary’s actions resulted in lost or stolen assets due to negligence or misconduct, the fiduciary may be forced to pay damages to the estate as compensation for the losses to the estate or its beneficiaries.
In some cases, a beneficiary may be entitled to double damages if the trustee or executor stole property from the estate or otherwise caused significant losses. These damages are typically reserved for cases in which the person has acted particularly egregiously, as the double damage award is essentially punitive in nature, punishing the person for the act of wrongdoing in itself.
Importance of Substantial Evidence
It’s important that a party seeking to raise a breach of fiduciary duty claim has clear and substantial evidence of the act. Comprehensive evidence is crucial for being able to establish legitimate claims against a fiduciary engaging in misconduct.
Potential evidence of a breach of fiduciary duty may include:
- Communications between the fiduciary and beneficiaries
- Falsified accountings
- Forged documents
- Unclear accountings
- Missing estate assets
- Witness testimony of an executor failing to fulfill their duties
Because a breach of fiduciary duty can be difficult to prove, being able to establish multiple pieces of evidence is valuable for demonstrating your case. You should consult a trust or estate litigation attorney as soon as possible to determine what pieces of evidence may be necessary and how to start compiling them.
Jurisdictional Considerations
Breach of fiduciary duty cases are handled similarly in most states. However, there may be some slight variations across state laws. The most common difference across states is the statute of limitations in probate that exists for a breach of fiduciary duty lawsuit.
In California, the statute of limitations for bringing a breach of fiduciary duty lawsuit is usually four years, according to the California Code of Civil Procedure. However, in cases of fraud, this statute of limitations may be three years.
Meanwhile, in Texas, breach of fiduciary duty claims have a four-year statute of limitations from the date the breach of fiduciary duty was discovered or should have been discovered.
Even within state lines, these statutes of limitations and other nuances related to breach of fiduciary duty may vary. Statutes of limitations may also be different depending on the specific details of your case, so you should contact an attorney for guidance as soon as possible.
Building a Robust Legal Argument
To prove breach of fiduciary duty, you will need to build a robust legal argument. Building a strong argument will involve the following steps.
Gathering Evidence
Gathering evidence for your case is crucial for being able to prove breach of fiduciary duty to the probate court. Proving a breach of fiduciary duty may not always involve straightforward evidence.
For example, in a case of an executor stealing estate assets, it may require a combination of multiple forms of circumstantial evidence to uncover the asset theft, such as witness testimony, a record of fraudulent estate transactions, or communications from the fiduciary demonstrating wrongdoing. Having the support of an attorney can be highly beneficial for helping you gather evidence of potential wrongdoing from a fiduciary.
Role of Legal Counsel
Breach of fiduciary duty cases are particularly complex, so the support of a breach of fiduciary duty attorney can be particularly valuable for helping you establish your case. Legal counsel will offer support at every step throughout the process, from gathering evidence for your case to helping you build a supporting argument.
Whether you are a beneficiary who suspects executor misconduct or an estate representative being accused of a breach of fiduciary duty, an attorney can offer legal advice and help you understand potential next steps in a case. The right estate litigation attorney will be committed to understanding the facts of your case, helping you build a winning strategy, and seeking a resolution as soon as possible.
If you are an executor, you should consider consulting an estate administration attorney who can help you understand your professional responsibilities and avoid potential conflict before it arises.
Strategies for Litigation
An estate litigation attorney will work with you to develop a strong litigation strategy. The first step is often to avoid litigation by using alternative dispute resolution methods such as mediation or negotiation.
Through negotiation or mediation, you can bring all parties to the table and discuss a mutually agreed-upon resolution, saving all parties the time, money, and stress that comes with litigation. For example, in a case where a fiduciary has failed to properly manage estate assets, you may be able to negotiate an agreement where the fiduciary agrees to reimburse the estate for any losses in exchange for remaining in their role.
However, if negotiation or mediation are unsuccessful, or the other party is unwilling to participate, litigation may be necessary. When litigation is used as a last resort, an attorney can help you assess the strength of your case, file the appropriate petition with the court, and provide the necessary notices to all parties.
Navigate Breach of Fiduciary Duty With RMO Lawyers
To prove breach of fiduciary duty, you must establish a fiduciary relationship, demonstrate evidence of a breach of duty, prove damages occurred from the action, and establish a link between the action and the damages. If you believe that an executor or trustee has committed a breach of fiduciary duty in handling your family’s estate or trust, you should consult a skilled probate attorney as soon as possible.
The trust and probate litigation attorneys at RMO LLP are equipped to support you in your breach of fiduciary duty case. With decades of experience in trust and estate litigation, we can represent both beneficiaries of an estate as well as trustees or executors in breach of fiduciary duty cases. Whether it’s finding support in understanding your duties as a fiduciary or building a winning case to protect the interests of the estate, we can help.
Schedule a consultation with our team to discuss your case and start identifying next steps.
Glossary
Breach of Fiduciary Duty – When a fiduciary fails to act in the best interests of the party they represent, typically resulting in harm or loss.
Fiduciary Duty – The legal responsibility of an individual to act in the best interests of another party while maintaining good faith and acting responsibly in legal decisions and during the management of property and financial assets.
Executor – The person named in a will who is responsible for managing the estate and ensuring the will’s terms are carried out.
Trustee – A person appointed by a trust’s creator to coordinate the administration of the trust, manage the trust’s assets and distribute the assets to the trust’s beneficiaries.
Personal Representative – An overarching term for a person who is responsible for administering an estate, encompassing the role of executors, administrators, and trustees.