It sounds financial but it isn’t. It is all about the person’s behavior in the relationship.
A fiduciary relationship is a legal relationship that includes responsibilities that can be enforced and it is important to look closely at it, according to the Denton Record-Chronicle What is the “F” word?“.
In a fiduciary relationship, whether between a lawyer and a client, a CPA and a client or two non-professionals, one person has a duty to act only in ways that will benefit the other person or group of people. The fiduciary relationship exists when one party places trust and confidence in another. The fiduciary is required to be loyal, act in good faith, be completely honest and refrain from doing anything that would benefit the fiduciary, instead of the person for whom they are responsible. This is required even if the people are not aware of being in a fiduciary relationship. The fiduciary is presumed to have acted in the best interest of the beneficiary under the business judgment rule, which protects fiduciaries if they make decisions in good faith and with adequate information.
The fiduciary may not use their position as trustee or financial advisor or executor, to “self-deal,” or take actions that benefit the fiduciary and not the other person or people. The fiduciary must also share all relevant information with the beneficiary. Plaintiffs must prove specific elements to establish a fiduciary duty claim.
So, who are these fiduciaries? They could be business partners, corporate officers, someone who has power of attorney for another person, trustees or estate representatives, attorneys or employees. These formal relationships are usually created based on legal agreements such as partnership agreements, estate planning documents, retainers (for attorneys) and employment contracts for employees. Understanding estate law is crucial for trustees and fiduciaries to ensure compliance with regulations. Law offices often handle these complex fiduciary duty issues.
Some fiduciary relationships come with more responsibilities than others. Trustees and personal representatives, like executors, are charged with tasks in addition to general fiduciary duties. They are usually given the responsibilities of handling money, property and investments on behalf of beneficiaries. They have a duty to properly manage those estate assets and report on those assets to the beneficiaries and heirs. They must also manage and account for all property owned by the decedent. Investment advisors may be involved to manage complex tasks effectively.
For attorneys, attorney-client privilege, that is, not sharing information that the client tells the attorney in confidence, is a fiduciary duty. It is also an ethical duty for the attorney.
For employees, the duty to act in an employer’s best interest may not be as limiting. Unless there is a non-compete contract, the employee may seek employment from a competitor or create a competing business while working for the employer. However, the employee may not steal customers or other employees, before resigning from a position.
In estate planning, the executor is expected not to self-deal, and to put the interest of the estate and its beneficiaries first. The executor may charge a fee. However, the amount is determined by the laws of the state.
If a fiduciary does not follow through on their duties, it is called a breach of fiduciary duty and can result in the fiduciary being sued by beneficiaries for restitution. Fiduciary breaches can lead to significant legal accountability and consequences.
