Fiduciary Duty of Loyalty

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 What is a Fiduciary Duty?

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.

What are the Basic Types of Fiduciary Duties?

There are three primary types of fiduciary duties that guide the actions and behavior of a fiduciary in their relationship with the beneficiary. These include:

Duty of Care

This duty requires a fiduciary to act with the same level of care that any prudent person would exercise in a similar position and under comparable circumstances. Essentially, fiduciaries must make well-informed decisions about how to manage and protect the assets they have been entrusted with, treating them as if they were their own.

An example of the duty of care in a fiduciary relationship would be a financial advisor managing a client’s investment portfolio. The financial advisor must act with the same level of care and diligence that a prudent and knowledgeable financial advisor would exercise in similar circumstances. This may include conducting research, analyzing market trends, diversifying the portfolio, and keeping the client informed of any significant changes or risks.

The financial advisor should always act in the best interest of the client and make decisions that align with their investment goals and risk tolerance.

Duty of Good Faith

Fiduciaries must always act with a conscious regard for their responsibilities, ensuring that they do not engage in any fraudulent or deceitful behavior that could harm the beneficiary.

An example of the duty of good faith in a fiduciary relationship would be a trustee managing a trust on behalf of the beneficiaries.

The trustee must act in the best interest of the beneficiaries and must not engage in any fraudulent or deceitful behavior that could harm them. This includes making decisions that are in line with the terms of the trust and avoiding any conflicts of interest that could compromise their judgment or cause harm to the beneficiaries.

The trustee must always act with conscious regard for their responsibilities and be transparent in their actions, ensuring that the beneficiaries have all the necessary information to make informed decisions.

Duty of Loyalty

This duty obliges a fiduciary to prioritize the interests of the beneficiary above all else, refraining from making any decisions that could negatively impact the beneficiary or serve the fiduciary’s personal interests.

An example of the duty of loyalty in a fiduciary relationship would be a corporate executive acting as a director of a company.

The director has a duty of loyalty to act in the best interests of the company and its shareholders, putting the interests of the company ahead of their own personal interests. The director must avoid any conflicts of interest that could compromise their judgment or lead them to make decisions that benefit themselves at the expense of the company or its shareholders.

For example, if the director also owns a competing company, they must disclose this potential conflict of interest and refrain from using their position to benefit their own business at the expense of the company they are directing. The director must not use any confidential information they gain as a result of their position for their own personal payoff.

Fiduciary duties are often enforced by public policy when specialized services are involved, such as money management, legal assistance, or medical care.

Common fiduciary relationships include:

What is a Fiduciary Duty of Loyalty?

The fiduciary duty of loyalty is a critical component of the fiduciary relationship, ensuring that fiduciaries act with integrity, fairness, and honesty. Fiduciaries must avoid self-dealing transactions, conflicts of interest, or any other actions that might exploit the principal for personal gain.

To uphold the duty of loyalty, fiduciaries should refrain from:

  • Misappropriating business opportunities: Fiduciaries must not seize business opportunities for their own benefit when those opportunities should be presented to the beneficiary.
  • Engaging in interested transactions: Fiduciaries must not use the beneficiary’s property or money for personal gain or engage in self-dealing transactions.
  • Breaching their duty of confidentiality: Fiduciaries must maintain the confidentiality of the beneficiary’s private information and transactions, only disclosing details when granted permission.

What Can Be Done About a Breach of the Duty of Loyalty?

A breach of the duty of loyalty typically occurs when a fiduciary acts in their own interest or to the detriment of the beneficiary. These breaches can involve fraudulent conduct or actions that benefit others at the expense of the beneficiary. If a fiduciary is found to have violated the duty of loyalty, they may be prosecuted for both the violation and any underlying offenses.

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

  • The fiduciary held a position of trust or was in a fiduciary relationship.
  • The fiduciary acted in a manner that personally benefited them within the scope of the relationship.
  • The duty of loyalty was owed.
  • The fiduciary breached this duty.
  • The breach resulted in damages to the claimant
  • The exact damages occurred.

In the event that a claimant brings a civil claim against a fiduciary, they may be entitled to receive damages for any lost profits incurred. The claimant may also be able to receive restitution to recover any profits that the fiduciary gained at the expense of the beneficiary. Even if the claimant did not directly suffer any harm, they may still be able to recover profits gained by the fiduciary.

Do I Need an Attorney for Fiduciary Duty of Loyalty?

If you find yourself in a fiduciary relationship where the fiduciary has breached their duty of loyalty to you, it’s essential to seek the services of an experienced and knowledgeable liability attorney.

By consulting with an estate attorney, you’ll be able to understand your rights and explore your options. An estate attorney can assist you in filing any necessary legal paperwork to safeguard your rights and represent you in court proceedings if required.

LegalMatch is an online legal matching service that can connect you with experienced attorneys who practice fiduciary law and can assist you with your legal needs.

By filling out LegalMatch’s online form with information about your case, you can be matched with attorneys who have experience in handling cases similar to yours. The attorneys you are matched with will have experience in fiduciary law and can provide you with guidance and representation throughout the legal process.

Using LegalMatch can save you time and effort in finding an attorney who is a good match for your case. You can review the attorneys’ profiles and read reviews from past clients, which can help you make an informed decision about who to hire.

LegalMatch’s service is free to use, and there is no obligation to hire any of the attorneys you are matched with.

If you need legal assistance with a breach of fiduciary duty claim, using LegalMatch can help connect you with experienced liability attorneys who can provide you with the guidance and representation you need to protect your rights.

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