Sacramento Fiduciary Duty Lawyer

Part of drafting a will or creating a trust is designating a trusted individual to manage the estate or trust property after a death.

A personal representative is an individual who manages the administration of an estate while a trustee takes over management of a trust. Because mismanagement or misconduct of an estate or trust can cause significant financial harm to any or all beneficiaries, the law imposes the highest legal standard of care on these individuals—a fiduciary duty.

Trustees, estate administrators, and estate conservators all have fiduciary duties to protect the assets over which they have authority. Violations of these duties can lead to sanctions from the probate court (up to, and including, removal from office). The California Probate Code provides remedies to beneficiaries or protectees whose trustees, estate administrators, and estate conservators impaired their financial rights through violations of fiduciary duty.

A Sacramento fiduciary duty lawyer can help beneficiaries or protectees determine how best to protect their interests. The following explains how an experienced estate attorney can protect beneficiaries and vulnerable persons from those who fail to properly perform fiduciary duties on their behalf.

What Is a Fiduciary Duty?

A fiduciary duty is a legal obligation imposed upon a person with authority over assets that do not belong to them. Corporate officers, for example, have fiduciary duties to manage and protect the assets of a business and its shareholders.

In probate court, many different roles can place a person in control of someone else’s assets. Trustees, for example, manage the assets of a trust to maximize the financial benefit to those beneficiaries identified in the trust. Similarly, an estate conservator can manage the financial affairs of an incapacitated adult. Estate administrators settle the assets and liabilities of a deceased person for the benefit of any heirs. In all of these situations, the role comes with authority to manage assets that do not lawfully belong to the person managing them.

So what specific duties do fiduciaries owe? Some are clearly stated, in no uncertain terms. Section 16004 of the California Probate Code prohibits trustees from dealing with trust property for their own profit, for any purpose unconnected with the trust, or to take part in a transaction in which the trustee has an adverse interest to the beneficiaries. For example, a trustee who wants to sell his own home to the trust would create a conflict of interest. As trustee, he would want the lowest price possible for the property, but as the home seller, he would want the highest. The inability to reconcile these needs has led state lawmakers to determine that trustees cannot engage in this type of self-dealing.

Similarly, this Section also prohibits trustees from conducting business with beneficiaries during the existence of a trust. The presumption here is that the “side transaction” would make the trustee partial in the administration of the trust.

Section 16005 also prohibits trustees from administering more than one trust if the beneficiaries’ interests are adverse to one another. (For example, Trust A is designed to save wildlife, while Trust B is devoted to developing property in protected wildlife areas, these two goals could come in irreconcilable conflict with one another.) All of these rules promote a trustee’s duty to act in the best interest of the trust beneficiaries.

Guardians and conservators also have fiduciary duties. A guardian is appointed to manage the financial affairs of a minor child, while a conservator is appointed to manage those of an adult who is unable to do so. Both guardians and conservators must also act in the best interest of their protectees. Courts can find evidence of self-dealing, profiting at the expense of the protectee, or improper side transactions a breach of fiduciary duty.

Types of Fiduciary Misconduct

As mentioned, not every action that results in losses to a trust or an estate constitutes fiduciary misconduct. Examples of actions that present strong cases for fiduciary misconduct include:

• Self-dealing – This occurs when fiduciaries take action from which they stand to benefit. Fiduciaries should never put their own interests ahead of those of the beneficiaries of a trust or estate. Self-dealing can involve usingassets for themselves, investing assets in their own businesses, and similar acts that reap personal benefits. Self-dealing can also rise to the level of embezzlement in some cases.
• Conflicts of interest – Fiduciaries should protect one interest when it comes to managing a trust or an estate—the beneficiaries. Unfortunately, some fiduciaries use their positions of trust for the enrichment of themselves or others. If anyone else except the beneficiaries benefits from the management of a trust or estate, the fiduciary may have a conflict of interest. Conflicts of interest may also arise when fiduciaries accept bribes or other considerations to influence their conduct.
• Beneficiary bias – The fiduciary duty is to all beneficiaries of a trust or estate and a fiduciary should never favor one beneficiary more than another. However, in some cases, a trustee or personal representative may enjoy a closer relationship to certain family members and may act to benefit them more. If one or two beneficiaries receive more profits than the rest, it is likely the result of beneficiary bias.
• Lack of discretion – Beneficiaries have the right to know the details of all fiduciary acts, as well as the state of the trust or estate property. Acting in secrecy or not providing information to beneficiaries when requested can constitute a breach of duty.
• Negligent mismanagement – Some personal representatives or trustees do not know how to properly manage estates or trusts or simply do not make the effort to do so. In such situations, a fiduciary is expected to seek help from a professional rather than let the assets go mismanaged. If they fail to seek help or to properly manage the accounts, beneficiaries can take action against them for negligence and breach of their fiduciary duties.
• Fraud – Some fiduciaries engage in fraudulent activities that hurt the estate, trust, and all beneficiaries. Any type of fraud or misrepresentation regarding their actions or the state of the property can not only result in losses to beneficiaries but may also constitute criminal activity.

How Violations of a Fiduciary Duty Can Harm All Other Involved Parties

One of the most egregious harms suffered as a result of breaches of fiduciary duty is the impact on those the fiduciary was obligated to serve. A grantor who creates a trust intends to make financial provisions for specified beneficiaries. A trustee’s breach of fiduciary duty will not carry out these wishes. Similar problems arise with an estate administrator who profits by disregarding the wishes expressed in a last will and testament.

Worse still are the harms suffered by protectees in the care of a guardian or conservator. In those cases, the protected person is alive and vulnerable. The court has entrusted that person’s finances to the conservator or guardian. Profiting at the expense of this vulnerable person is perhaps even more harmful than disregarding the wishes of a person who was able to express them through a will or trust.

And of course, beneficiaries and loved ones suffer real financial losses as the result of breaches of fiduciary duties. The Probate Code, therefore, also sets forth the costs for which protected people and heirs may hold responsible someone who breaches a fiduciary duty. These costs demonstrate the many different financial losses that can occur as a result of a breach of fiduciary duty. Section 2401.3 allows for the recovery of:

• Any losses (including profits) or depreciation suffered as a result of the breach (including interest)
• Any profit the guardian or conservator made as a result of the breach (including interest)

How a Probate Attorney Can Help Hold Trustees, Executors, and Guardians Accountable for Meeting Their Fiduciary Duties

Worse than the devastating financial losses of a breach of fiduciary duty are the effects on protected people, and on the beneficiaries to whom a person intended to bestow assets. An experienced probate attorney can help hold executors, trustees, guardians, and conservators accountable for breaches of their fiduciary duties. This both helps prevent further losses and protects either a protected person or the wishes of a person who formed a will or trust.

Experienced Probate Litigators to Provide Accountability

Violations of fiduciary duty can harm everyone involved in the probate process. Trust grantors, will executors, and beneficiaries alike can suffer losses when a trustee or executor fails to meet the fiduciary duties of the office. It is up to loved ones to hold fiduciaries responsible for meeting their legal obligations.

The experienced probate litigators at Hackard Law can help beneficiaries protect their financial interests from the harm caused by a fiduciary violation. Call today to speak with a Sacramento fiduciary duty lawyer.