Have you recently been appointed the executor, trustee, or administrator of an estate? If so, you may have been presented with the term “fiduciary duty.” And you may wonder, What is a breach of fiduciary duty? It is understandable that this term is unfamiliar to you if you have never been appointed to manage an estate before. Therefore, we are going to go over some of the basics today to help you get a better understanding of the term and its associated responsibilities.
However, before diving into the meaning of fiduciary responsibilities, we want to advise you that it is best to seek the advice of an estate planning attorney before you act in your official capacity as an estate manager. The laws surrounding trusts, wills, and estates can be very complex, and there are significant consequences if you violate these laws.
At the Law Office of Andrew M. Lamkin, P.C., our team of legal professionals can help you navigate the legal world of trusts and estates and help ensure that you follow the proper procedures. Our principal attorney, Andrew Lamkin, has over a decade of experience dealing with trust and estate issues. He has helped numerous clients effectively manage the estate that has been entrusted to them, and he can help you. Don’t hesitate to contact us today.
First, What Is a Fiduciary Duty?
Fiduciary duties arise through a special type of legal relationship called a fiduciary relationship. In the context of estate law, a fiduciary relationship is triggered when a person is granted the power to control and dispose of estate property for the benefit of another. The most common fiduciary relationships include the following:
- The trustee and the beneficiary,
- The executor and the beneficiary,
- The administrator and the beneficiary,
- The financial advisor and the client,
- The attorney and the client,
- The guardian and the ward, and
- The agent and the principal.
When a fiduciary relationship is triggered, the person who has the power over the property, or the fiduciary, owes a fiduciary duty to the individuals that they are acting on behalf of.
A fiduciary’s duties include the duty of care, loyalty, diligence, and honesty. Each of these individual duties falls under the umbrella of fiduciary duty. And, when a fiduciary breaches one or more of their duties, there can be serious legal consequences.
Breach of Fiduciary Duty
A breach of fiduciary duty occurs when the fiduciary fails to act in accordance with the high standards that are placed upon them. Below, we talk about some of the most common signs of a breach of fiduciary duty.
Self-Dealing
When a fiduciary engages in self-dealing, it is likely that they have breached their fiduciary duty. So, what is self-dealing? It is when a fiduciary uses their power over the property to benefit themselves—usually at the expense of the beneficiaries or heirs. For example, if a fiduciary is trusted with funds to invest and chooses to invest in their own business ventures, this is typically a breach of their fiduciary duty.
Another common example of self-dealing involves the purchase and sale of real estate. For instance, if a fiduciary uses trust funds to purchase property that the fiduciary owns, it is likely that they have engaged in self-dealing.
Mismanagement
Mismanagement is one of the most common breaches of fiduciary duty. Mismanagement occurs when the fiduciary fails to manage the property or assets in a competent manner. For example, when a trustee fails to invest trust funds prudently and it results in a significant loss of value, the trustee can be held liable for breaching their fiduciary duty. Or, if a fiduciary sells property below its market value, they may have breached their fiduciary duty to act in the best interests of the beneficiaries or heirs. Further, if a fiduciary uses trust or estate property for personal reasons, it is almost certain that they have breached their fiduciary duty.
Mismanagement can also involve the failure to distribute estate assets according to the terms of a will or trust. Failure to distribute assets according to the testator’s wishes will usually result in a breach of fiduciary duty unless exceptional circumstances are present.
Failure to Act
When a fiduciary fails to take the actions necessary to protect the interests of the beneficiary, they can be found liable for breach of their fiduciary duty. A common instance of a failure to act is when the fiduciary fails to make investments in a timely manner, resulting in a loss of value to the estate’s assets. Here, the fiduciary may be liable for the loss in value as well as other penalties.
Failure to Keep Accurate Records
If a fiduciary fails to keep records of the assets, liabilities, and relevant transactions of the estate, they may be held liable for breach of their fiduciary duty. For instance, if a trustee fails to keep records of their investments of the trust corpus, the fiduciary trustee has likely breached their fiduciary duty. Because the court will usually interpret this type of conduct as a lack of transparency that undermines the confidence of the beneficiaries or heirs, there can be legal consequences.
In addition, when records are inaccurate or incomplete, it can be difficult to comply with regulatory requirements like tax laws or securities laws. When a fiduciary’s failure to act leads to a regulatory violation, they can be held liable for these violations as well as for breach of fiduciary duty.
Andrew M. Lamkin, P.C. Is Here to Help
As you can see, fiduciaries are held to a high legal standard. Fiduciaries must always act with honesty, diligence, and integrity when dealing with estate matters.
Whether you are the manager of an estate or a beneficiary seeking to enforce your legal rights, Andrew M. Lamkin, P.C., is here to help. Attorney Andrew Lamkin has the tools and expertise necessary to deal with even the most complex estate matters, and he is intimately familiar with New York’s wills, trusts, and estate laws. Further, because we know how expensive estate matters can be, we offer free consultations to all of our potential clients. To schedule a free case evaluation, contact our office. There may be important legal deadlines to meet in your case, so please do not hesitate to reach out to us today.