How Serious Is a Breach of Fiduciary Duty?

A fiduciary duty is one of the most demanding obligations that exists under the law. It requires a person in a position of trust and confidence, such as a trustee, executor, administrator, or personal representative to act with utmost good faith and loyalty towards the beneficiaries of the trust or probate estate they are administering. A fiduciary must always put their beneficiary’s interests first and foremost before anything else, including themselves. Trustees and executors can breach their fiduciary duty through fraud, conflicts of interest, self-dealing, or failure to disclose relevant facts related to the administration of a trust or probate estate. 

Because of the fiduciary duty owed by trustees and executors, they are legally obligated to:

  • Place all beneficiaries’ interests above their own.
  • Always act in good faith.
  • Treat all beneficiaries fairly with honor and care.
  • Act honestly, fairly, and reasonably.
  • Remain transparent about all relevant, material information.

If a fiduciary fails to comply with these responsibilities, they may have breached their fiduciary duty. In the case of an executor or trustee, a breach of fiduciary duty may result in their suspension, removal and/or a surcharge – a court order requiring them to pay money damages for the harm caused by the breach. In the rarest of cases, fiduciaries can face criminal charges.

What is the penalty for breach of fiduciary duty?

The most frequent penalties for breach of fiduciary duty include suspension or removal as trustee or executor and the payment of money damages, attorney fees, and court costs.

When it comes to money damages, fiduciaries who violate their duties may be ordered to pay compensatory damages, punitive damages, or double or treble damage. Compensatory damages are intended to make the injured beneficiary “whole” again after the breach. In other words, this type of damages reimburses the trust, estate or beneficiary for the money they lost as a direct consequence of the fiduciary’s breach of duty. 

On the other hand, punitive damages serve to punish the fiduciary for their wrong actions by requiring them to pay an additional amount of money on top of the compensatory damages. 

In some situations, double and treble damages may be available as statutory remedies that double or triple the amount of compensatory damages the fiduciary must pay under certain laws. 

In addition to damages, the fiduciary may be required to reimburse the beneficiary for the fees and costs incurred due to the legal action the breach forced them to take. This includes attorney fees, expert witness fees, filing fees, and court costs. 

Can you go to jail for breach of fiduciary duty?

Yes, technically you can go to jail for some breaches of fiduciary duty, such as theft, fraud, and embezzlement. However, far more often than not, prosecutors do not have the resources to pursue criminal charges against fiduciaries who breach their duties and allow the civil courts to resolve these issues.

In California, breaching a fiduciary duty through theft or embezzlement is considered a misdemeanor crime when the value of the stolen assets is $950 or less and is punishable by up to 6 months in county jail. If a fiduciary takes property worth more than $950, they can face charges for felony embezzlement, which can lead to a sentence of up to 3 years in jail.

In our experience, it is highly unlikely that a breach of fiduciary duty that involves theft or fraud will escalate to a criminal charge. Trustees and executors are usually only indicted for a crime in the most severe cases. Instead, the trustee will usually only be required to return the embezzled property to the trust and potentially be ordered to pay double, treble, or punitive damages, as well as attorney’s fees and costs. Keep in mind that civil courts can’t send people to jail, so a fiduciary can only go to jail if they are convicted in a criminal court.

When should I contact a trust litigation attorney?

If you have been accused of breaching your fiduciary duty as a trustee or an executor, you should immediately contact a probate litigation attorney to protect yourself. However, trustees and executors are best served by retaining a trust attorney or probate lawyer as soon as they are appointed. Working with an experienced professional can help you proactively avoid breaching your fiduciary duty, preventing lawsuits and potential exposure to personal liability.

 

TALK TO SCOTT

 

Have questions? We’re happy to discuss.

Call (424) 320-9444 or email hello@rmolawyers.com

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About RMO, LLP

RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.