Hopefully, our loved ones have planned how to distribute their property when they’re no longer with us. Depending on how your relative chose to distribute their property after death, you may find yourself involved with a will’s executor or a trust’s trustee. Under the law, these people owe you the highest degree of care.
They owe you and other recipients of estate property a fiduciary duty. But just what is a fiduciary duty? And what can you do if your trustee or executor breaches their fiduciary duty? We explain this complex legal relationship below. If you have questions, don’t hesitate to contact our team at Robbins Estate Law.
What Is a Fiduciary Duty?
To understand the concept of a breach of fiduciary duty in Texas, we’ll first explain what a fiduciary duty is. Fiduciary duty is the legal obligation one party has to act in the best interests of another person or people, who we’ll refer to as the beneficiaries in this article. A contract or agreement can create a fiduciary relationship. Statutes and case law also assign fiduciary duties to certain types of relationships.
Several specific duties make up the fiduciary duty. The duties a fiduciary owes beneficiaries include:
- Good faith,
- Prudence, and
As this list shows, the fiduciary duty is meant to protect beneficiaries by imposing rigorous standards on fiduciaries. Two of the most important duties fiduciaries must meet are the duty of care and the duty of loyalty.
Duty of Care
The fiduciary duty of care requires the fiduciary to diligently pursue the beneficiaries’ best interests. This means decisions the fiduciary makes must be reasonable and prudent. The fiduciary should take an active role in making decisions, reasonably investigate options and, when necessary, consult with experts about decisions they are planning to make.
Duty of Loyalty
The duty of loyalty means the fiduciary must always put the best interests of the beneficiaries first. Included in the duty of loyalty is the principle that the fiduciary must avoid any conflicts of interest. Conflicts occur when the fiduciary makes decisions based on self-gain or self-interest.
A good example of the duty of loyalty is in a trustee-beneficiary relationship. The trustee must manage the trust in the best interests of the beneficiary. The trustee cannot make trust decisions for their own financial gain, especially if it conflicts with the beneficiary’s interests.
Examples of Fiduciary Relationships
Texas law assigns fiduciary duties to parties in many types of professional relationships. Some examples of fiduciary relationships are:
- A corporate officer’s relationship with the corporation,
- A lawyer to their client, and
- A doctor to their patients.
There are also situations where someone owes a fiduciary duty to another person without requiring a professional relationship between the parties. For example, spouses owe fiduciary duties to each other, and a guardian owes a duty to their ward.
In the context of estate planning, the primary fiduciary relationships are:
- The relationship between an executor of a will and beneficiaries of the will, and
- The relationship between a trustee of a trust and the trust’s beneficiaries.
Executors and trustees are charged with gathering, accounting for, and managing assets. An executor or trustee must prioritize the beneficiaries’ interests when performing these tasks. Suppose a trustee uses trust assets for personal gain, commingled trust assets with their assets, or neglects their duties entirely. In that case, they could be liable for a breach of fiduciary duty.
What Constitutes a Breach of Fiduciary Duty?
You now understand the basics of a fiduciary relationship, but you’re probably still wondering, What constitutes a breach of fiduciary duty? A fiduciary duty means someone must act in the best interests of another person. Thus, a breach occurs when the fiduciary fails to work in that person’s best interests.
Texas law permits the harmed person to sue the fiduciary for a breach. You may wonder, How do you prove breach of fiduciary duty? You must prove several legal elements of breach of fiduciary duty to succeed in a case. You must demonstrate that:
- A fiduciary relationship exists between the fiduciary and the harmed person either because of an agreement or by law;
- The fiduciary breached their duty to the person; and
- The breach caused harm to the person or benefited the fiduciary.
When a fiduciary works for their own financial gain, they may be liable for a breach unless they have obtained consent from the person to whom they owe a fiduciary duty.
Breach of Fiduciary Duty Examples
A breach of fiduciary duty occurs when the person owing the duty fails to fulfill it for some reason. As a result, there are many potential examples of breach of fiduciary duty. We’ll discuss the most common breaches in the estate planning context.
Examples of when a trustee, executor, or administrator breaches their fiduciary duty include when they:
- Embezzle money from the trust or estate;
- Gain profits from self-dealing (for example, when they use the trust or estate for their own financial interest);
- Neglect the estate or trust and allow it to waste;
- Fail to give notice to beneficiaries or heirs;
- Fail to provide an accurate accounting of the estate or trust;
- Make improper disbursements;
- Fail to carry out the instructions for the trust or estate;
- Make late or untimely distributions; or
- Have a conflict of interest between themselves and the beneficiaries, which could be a reason to have them removed and replaced.
These are just a few examples of potential breaches of fiduciary duty. It’s always best to discuss the particular facts of your situation with an experienced attorney to determine if you have a case based on a breach of fiduciary duty. Plus, an attorney will be able to help you prepare and file any lawsuit or other documents in court to ensure you don’t suffer additional harm due to the fiduciary’s failures.
Who Can Sue for a Breach of Fiduciary Duty?
Not just anyone can sue for a breach of fiduciary duty in Texas. Only the parties who are supposed to benefit from the fiduciary relationship can sue a fiduciary. For example, in a trust, a beneficiary can sue a trustee.
Remedies Available for Breach of Fiduciary Duty in Texas
The law provides many different remedies for breach of fiduciary duty in Texas, depending on the circumstances.
Perhaps you are wondering, What is the penalty for breach of fiduciary duty? A fiduciary manages assets on behalf of another. When they fail, they can wreak havoc on those assets. For this reason, courts can take quick and immediate action if the fiduciary breaches their duties.
Harmed beneficiaries often fear what will happen if an untrustworthy fiduciary remains in charge of their assets. Fortunately, a court can issue orders to protect the assets and beneficiaries, including taking the following actions:
- Appointing a receiver who takes over the assets under the court’s direction;
- Removing the trustee or executor;
- Stopping the fiduciary from taking further action or ordering them to act;
- Forcing the fiduciary to return any profits they received as a result of their wrongful activity; and
- Requiring the fiduciary to forfeit any compensation they would otherwise be owed.
An experienced attorney can help you prepare motions and requests to ask a court to issue orders that are applicable in your case.
Financial compensation is available to harmed individuals in breach of fiduciary duty cases. The harmed party can recover actual damages, compensating them for their loss. For example, if a trustee neglects the trust and the trust loses money, the beneficiary can recover this loss from the trustee if they’re successful in their case.
A harmed party could also potentially recover noneconomic or special damages. These damages include things such as emotional distress or mental anguish. An attorney can help you understand if these damages are available in your situation.
Depending on the type of fiduciary relationship, a court may also order the fiduciary to pay the harmed party’s attorney’s fees. For example, a court can order a trustee to pay a harmed beneficiary’s attorney fees in a successful breach of fiduciary duty claim.
What Is the Time Limit to File a Case for Breach of Fiduciary Duty?
For every type of legal claim, there is a time limit by which a harmed party must file. This time limit is called the statute of limitation. The Texas statute of limitations for a breach of fiduciary duty case is four years. Four years may seem like a lot of time, but you should not delay. A fiduciary who is breaching their duty can cause a great deal of harm to your assets. Having a lawyer help you to get a court involved early can help you prevent additional harm to your assets.
Talk to Our Lawyers About a Breach of Fiduciary Duty Case
Understanding the obligations of a fiduciary can be difficult. Preparing a court case to protect your assets can also be complicated. If you are a beneficiary of an estate or a trust, Robbins Estate Law is here to help you. We’ll discuss the facts of your case and help you understand your rights under the law. We are highly experienced estate attorneys who’ve gone to the top law schools in the country. You can rely on us for all of your trust and estate matters. Contact us today online or by phone to find out how we can help you.