Fiduciary Bond

A fiduciary duty refers to the legal or ethical obligation of an individual, known as a fiduciary, to act in the best interest of another person. This other person, often called the principal or beneficiary, entrusts the fiduciary with the responsibility to manage and protect assets (such as money) on their behalf. The nature of this relationship is rooted in trust and confidence. Among other types of fiduciaries, this applies to the executor or administrator of a will or estate.

Some other examples of a fiduciary would be groups of people such as:

• Money managers
• Financial advisors
• Bankers
• Insurance agents
• Accountants
• Executors
• Board members
• Corporate officers
• Lawyers

What Are the Basic Types of Fiduciary Duties?

The overarching duty of a fiduciary is the obligation to act for the beneficiary’s benefit, not the fiduciary’s benefit. Fiduciary duties can be categorized in three ways:

• Duty of Care: A fiduciary is expected to use the same amount of care that any ordinarily prudent person would exercise in a similar position and under similar circumstances. An example of this would be a fiduciary’s duty to manage the principal’s property or money, as well as they would handle their own. The fiduciary must make prudent decisions regarding the best ways to manage and protect the assets they are entrusted with
• Duty of Good Faith: The fiduciary is tasked with acting with conscious regard for their responsibilities as a fiduciary. What this means is that the fiduciary must not act in any fraudulent or deceitful way, or in any way that is to the detriment of the principal.
• Duty of Loyalty: A fiduciary’s duty of loyalty is vast. In short, the fiduciary must act for the benefit and advantage of the principal without making any decisions that would be disadvantageous for the principal. A fiduciary may not make any decisions on behalf of the principal that are out of self-interest or for their own benefit.

What Is a Fiduciary Bond?

A fiduciary bond is a type of judicial bond imposed on a fiduciary. Essentially, the court requires the fiduciary to deposit a certain monetary amount with the court. This amount will act as a type of insurance in order to ensure that the fiduciary performs their responsibilities in the interest of the principal, as they are supposed to. The fiduciary bond is often utilized to help prevent instances of fraud, theft, or embezzlement of the estateholder’s property and money.

Fiduciary bonds may be called by different names depending on the context. Some examples of these different terms include:

• Probate bonds
• Executor bonds
• Administrator bonds
• Conservatorship bonds

Who Are Fiduciary Bonds Applied To?

Fiduciary bonds are applied to any person or party acting in a fiduciary capacity. To put it simply, any person who has a fiduciary duty or responsibility to another person could become subject to a court-ordered fiduciary bond.

Such people may include:

• Trustees
• Estate executors or administrators
• Financial advisors
• Legal guardians
• Lawyers and other professionals

The specific definition of a fiduciary can vary from jurisdiction to jurisdiction. Generally speaking, the test used to determine whether or not a person is a fiduciary analyzes the amount of control the person has over the alleged principal’s finances or estate. If the financial representative exercises a great deal of control and decision-making over another person’s finances, they will likely be considered as a legal fiduciary of that other person.

What if the Fiduciary Violates Their Duties?

A fiduciary may violate their legal duties as the other person’s agent. That is the main purpose of a fiduciary bond: to encourage the fiduciary to adhere to their responsibilities, or they will lose the value of the bond.

Some of the most common types of fiduciary violations include:

• Stealing or embezzling funds
• Unlawfully gaining access to accounts or personal information through means of fraud or misrepresentation.
• Purposefully giving the person bad advice to lead them to a certain decision.
• Coercing the person to make decisions through physical harm or threats of physical harm
• Making alterations or serious errors in an account report

While a fiduciary bond cannot always prevent every single violation, these bonds can be very useful in terms of providing general protection against losses. Should a violation occur, the fiduciary may need to pay a damages award for the economic losses caused to the person.

What Can Be Done About a Breach of the Duty of Loyalty: Lawsuits Against Fiduciaries

As previously mentioned, one of the most important fiduciary duties is the duty of loyalty. Fiduciaries are expected to act in good faith, as well as with all of the fairness, ethics, and honesty that the law requires of their position. They must not be involved in any self-dealing transactions, conflicts of interest, or any other abuses of the principal for any personal advantage.

When making any transactions or decisions, the fiduciary must avoid the following breaches of duty:

• Misappropriating Business Opportunities: When a fiduciary manages and protects property or money on behalf of a principal for business purposes, they must not seize for themselves a business opportunity meant for the principal. The fiduciary must disclose and offer the business opportunity to the principal.
• Making SeIf-Interested Transactions: Fiduciaries entrusted with a principal’s property and money must protect and manage the property on behalf of the principal. Because of this, they must not make self-interested transactions utilizing the property entrusted to them. An example of this would be how a fiduciary may not buy or sell assets, make any type of personal profit, or make any type of self-dealing transactions using the money or property entrusted to them.
• Breaking Their Duty of Confidentiality: The duty of loyalty requires that a fiduciary maintain confidentiality regarding all decisions and private information with which they have been entrusted. A principal may not wish for public disclosure of their private matters. This means the fiduciary is prohibited from disclosing information about the beneficiary’s property or transactions. They must first obtain permission to disclose

Breaches generally occur when the fiduciary acts in any way that benefits themselves as opposed to the beneficiary or acts to the detriment of the beneficiary. A breach could also include the fiduciary acting in such a way that benefits others at the beneficiary’s expense.

To recover damages for a breach, the claimant must show that:

• The fiduciary occupied a position of trust, and there was a fiduciary relationship
• The fiduciary acted in a manner that benefited themselves personally while they were working in the scope of the fiduciary relationship.
• Proof that the fiduciary breached one or more of their duties
• The breach caused damage to the principal

If a civil claim is brought by the claimant against the fiduciary, the claimant could receive damages for any lost profit. They may also receive restitution to recover profits that the fiduciary gained to the detriment of the beneficiary. It may be possible for the claimant to recover profits that were gained by the fiduciary, even if the claimant did not suffer any type of harm.

Do I Need a Lawyer for Help With Fiduciary Bond Issues?

Because the state and local laws covering fiduciary bonds may be different in each jurisdiction, you may wish to consult with a local estate lawyer if you need help with a fiduciary bond.

A skilled and knowledgeable local attorney will be best suited to advise you regarding local laws and how they may affect your case. An experienced and local estate attorney can also assist in resolving any fiduciary bond issues you may be encountering, as well as representing you in court as needed.