Fiduciary duty refers to a legal obligation that one party (the fiduciary) owes to another (the beneficiary). This duty requires the fiduciary to act in the best interest of the beneficiary.
When fulfilling this duty, the fiduciary must exercise care, loyalty, and honesty. The fiduciary must put the beneficiary’s interests above their own and avoid conflicts of interest. If conflicts do arise, the fiduciary must disclose them promptly.
Examples of Fiduciaries
In a financial context, a financial advisor or portfolio manager who acts as a fiduciary must make investment decisions that best serve the client’s needs and goals, rather than seeking personal profit.
Executors and Trustees are also examples of fiduciaries. An executor owes a fiduciary duty to the estate beneficiaries. A trustee owes a fiduciary duty to the beneficiaries of the trust.
What happens when an Executor breaches their fiduciary duty?
If the fiduciary breaches this duty, the beneficiary may take legal action against them, and the court may impose penalties or damages. When an executor breaches their fiduciary duty, specific events unfold that may include:
Identification of the Breach
The beneficiary, or a legal representative, identifies that the fiduciary has failed to act in the best interest of the beneficiary or has otherwise violated the terms of the fiduciary relationship.
The beneficiary or their legal counsel may investigate the actions and decisions of the fiduciary to gather evidence of the breach.
The beneficiary may file a lawsuit against the fiduciary, alleging a breach of duty.
The court evaluates the evidence, hears arguments from both sides, and determines whether a breach of fiduciary duty has occurred.
Imposition of Penalties
If the court finds that the fiduciary did breach their duty, it may impose penalties, damages, or other remedies. This could include monetary compensation to the beneficiary, removal of the fiduciary from their position, or other corrective actions.
When a fiduciary breaches their fiduciary duty, it triggers a legal process that may lead to an investigation, court proceedings, and potential penalties against the fiduciary. Throughout this process, the focus remains on determining the nature of the breach and ensuring the beneficiary receives appropriate redress or protection. In essence, fiduciary duty demands that a person in a position of trust exercises that trust responsibly, prioritizing the interests of those they serve. All fiduciaries should consult counsel to better understand their responsibilities.