Critical Things to Know About Fiduciary Duty

Creating a will or a trust is a serious matter, and choosing who you appoint to carry out your wishes (the fiduciary) is the most important estate planning decision you’ll make.

When you create a will or a trust, you appoint executors, guardians, and trustees, known collectively as fiduciaries. A fiduciary performs specific duties, such as managing and protecting money or property for another person or a business. A beneficiary is a person or organization that benefits from the will or trust.

Fiduciary duty is a situation in which the individual must act in the best interest of the beneficiaries, who are the people or organizations that benefit from a will, trust, or other agreement. This special responsibility requires them to have undivided loyalty and act in good faith, with care and thoughtfulness, and without conflicts of interest.

Everything You Need to Know about Fiduciary Duty

There are many types of fiduciary relationships

Fiduciary relationships include:

  • An executor who has a fiduciary duty to the heir
  • An attorney who has a fiduciary duty to a client
  • A trustee who has a fiduciary duty to a beneficiary
  • An employer who has a fiduciary duty to an employee

Your child may not be the best choice as a fiduciary for your estate

Many people choose their children as fiduciaries, but this may not always be the best choice for everyone. Adult children may not have the qualifications to navigate wills or trusts, for example, or they may be too busy with families of their own. What’s more, the children may not have the neutrality needed to carry out their duties, especially after losing a parent who had been the stabilizing force or “rock” of the family.

Breach Of Fiduciary Duty

The word “fiduciary” comes from the Latin word fiducia, which means “trust.” A breach of duty occurs when the fiduciary breaks that trust by acting in their own best interest, rather than in the best interest of the beneficiaries. Breaches of fiduciary duty may be unlawful in some cases, or simply unethical in others.

Examples of fiduciary breaches include:

  • Fraud or theft
  • Conversion, in which the fiduciary takes ownership of money or property belonging to the estate or trust
  • Conflict of interest
  • Self-dealing, when the fiduciary acts in their own self-interest
  • Disloyalty to beneficiaries
  • Improperly favoring one beneficiary over another
  • Colluding with some beneficiaries to deprive others of their estate assets
  • Poor judgment, such as making incompetent investment decisions using the assets of the estate
  • Stealing or misusing property that belongs to the estate or beneficiaries

What happens when a breach of duty has occurred?

If a fiduciary breaches their duties, they must account for their actions and the beneficiaries may be entitled to damages.

California law allows beneficiaries to sue for and receive damages, including any profits the fiduciary made when breaching their fiduciary duty.

To learn more about fiduciary duty and breaches, consult with Mr. Charles Stark. Our Sonoma County estate planning attorney is highly experienced in helping clients name the best fiduciaries for their estate, will, or trust.

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