What is Considered 'A Breach of Fiduciary Duty’?
A fiduciary is someone who owes a fiduciary duty to another person to act in that person’s best interest. Generally, the fiduciary duty relates to a financial matter. It is the highest legal duty a person can owe to another person. Fiduciaries have a duty to act with honesty and loyalty in all matters on behalf of the person they represent.
If you think you may have breached your duty to a family member, friend, or business associate, it is wise to seek the advance of an experienced Maryland estate administration attorney. Keep reading for more information.
Fiduciary duties arise in probate matters. Individuals with a fiduciary duty include:
Personal Representatives owing a fiduciary duty to the heirs of the estate
Trustees owing a fiduciary duty to the trust’s beneficiaries
Guardians owing the individual they are appointed to protect a fiduciary duty
Power of Attorneys owing a fiduciary duty to the person who appointed them as their agent
Fiduciaries can be held legally liable for committing intentional fraud or wrongdoing. They can also be held liable for negligence. A fiduciary must avoid conflicts of interest that could impact the other person's best interests. Even an appearance of potential conflicts of interest could give rise to a claim for breach of fiduciary duty.
Examples of Ways a Person May Breach Their Fiduciary Duty
Fiduciaries may breach the fiduciary duty in several ways. Common examples of breaching a fiduciary duty include:
Failing to disclose potential conflicts of interest
Using the property of the estate, trust, or person for the fiduciary’s personal use or personal gain
Failing to file required documents and paperwork
Excessive waste of assets
Comingling the estate, trust, or person’s assets with the fiduciary’s assets
Acting carelessly or recklessly with the principal’s or the beneficiary’s assets or property
Misappropriating, stealing, or borrowing the trust, estate, or a person’s funds or assets
Using the principal’s or beneficiary’s property for personal use
Failing to maintain complete, accurate, and current records and books
Favoring one beneficiary over another beneficiary
Failing to make sensible investments
Using the fiduciary’s position or power to act in the fiduciary’s best interest
Fiduciaries who breach the fiduciary duty are subject to legal action. Persons represented by a fiduciary may file a lawsuit alleging one or more causes of action. For example, in an estate or trust, the beneficiaries or heirs may file a lawsuit requesting the court replace the trustee or court. The fiduciary may also be subject to a lawsuit seeking damages.
Removing a Fiduciary for Breach of Duty
If you believe that a personal representative, trustee, guardian, or power of attorney has breached their fiduciary duty, you may petition the court to remove the person. Several Maryland code sections speak directly to this issue.
The Maryland Estates and Trusts Code §15-112 provides that a court shall remove a fiduciary who:
Misrepresented material facts that led to their appointment or other action by the court
Willfully or negligently disobeyed a court order
Shown to be incapable of performing their duties
Breached the fiduciary duty of loyalty and good faith in managing the fiduciary estate property
Failed to file a bond with the court
Failed to administer the fiduciary estate or perform any fiduciary duty competently
The code also lists reasons the court may remove a personal representative. Under Maryland Estates and Trusts Code §6-306, the court may remove a personal representative for:
Misrepresenting material facts in the proceedings that lead to the person’s appointment as personal representative
Willfully disobeyed a court order
Is incapable or unable to perform their duties or powers effectively
Mismanaged property
Failed to maintain a local agent for service of process when they are not a resident of Maryland
Failed to perform a material duty without a reasonable excuse
Likewise, the Maryland Estates and Trust Code lists reasons the court may remove a trustee. In addition to the reasons given for removal in Code §15-112, the court may remove a trustee for the following reasons listed in Code §14.5-706:
Trustee has committed a severe breach of trust
The removal of the trustee serves the best interest of the trust beneficiaries because of the trustee’s unwillingness, unfitness, or persistent failure to administer the trust effectively
The lack of cooperation between co-trustees impairs the administration of the trust
A substantial change of circumstances followed by a request of all beneficiaries establishing a co-trustee or successor trustee is available, removal is consistent with the material purpose of the trust, and is in the best interest of all beneficiaries
In addition to the above statutes, other causes of action could apply in a breach of fiduciary duty case. An attorney can review your situation and advise you of your legal options to remove a fiduciary not acting with loyalty and in the best interest of the person or estate they represent.
Contact Our Maryland Estate Planning Lawyer for More Information
Choosing someone to act as your fiduciary can be challenging. If you have questions about estates, trusts, guardianships, or estate administration, contact Steve for help today.
