A fiduciary duty is a legal relationship between at least two parties. The "fiduciary" is the party the duty is imposed on. The "principal" is the party that is owed the duty. Trustees have certain fiduciary duties when managing a trust. Since trustees are legal owners of the trust property, the trustee has a fiduciary duty to refrain from taking advantage of the legal ownership the trustee holds by using the trust property for his/her own benefit.
One of the most common examples of a fiduciary duty arises between trustees and beneficiaries. The trustee is the legal owner of the property of a trust. The beneficiary has no legal title to the property in the trust but may get use of the property without ownership.
The following are the fiduciary duties owed by a trustee:
- Duty of Care: The most important duty of a trustee is the duty of care in which the trustee must carefully manage the trust property and assets. In any investment transactions, the trustee must make all transactions with reasonable care, skill, and caution. The trustee must act prudent and monitor all investments to make sure they are being productive and avoiding loss.
- Duty of Loyalty: The trustee owes a duty of loyalty to the beneficiaries and must refrain from putting its own interest before the beneficiaries interest. The trustee must not undertake any transactions that would be adverse to the beneficiaries’ interest. The trustee must avoid any “self dealing transactions” in which the trustee gets compensation on behalf of the trust for his/her own benefit.
- Duty to Secure and Safeguard: After accepting appointment to serve as a trustee, a trustee has a duty to protect and safeguard all trustee properties in the trustee’s control. The trustee would be personally liable for any loss of trust property that trustee had a duty to safeguard and protect.
- Duty to Segregate: A trustee must keep all of the trust assets separate from his/her own assets. Earmarking the trust assets in order to distinguish the trust property with his/her own can do this process. Trustee will be liable for commingling of trust assets with his/her property even if they were without fault.
- Duty to Invest: The trustee has a duty to make the trust property productive and prudently invest the trust property for the income of the beneficiaries. Trustee can accomplish this by investing and making every asset productive to avoid loss.
- Duty to Account: While administering the trust property, the trustee must organize and account all trust assets by making regular records of any investments, improvements, losses, and expenses.
When a principle can show breach of the fiduciary duty, the benefit gained by the fiduciary should be returned to the principal. There are several remedies that can be imposed on a trustee upon breach of a fiduciary duty. Some of the remedies a court can impose on a trustee are:
- Denial of trustee fees for the services provided by trustee.
- Removal of the trustee from trustee position.
- Collection of attorney fees.
- Restitution for any profit/benefit gained on behalf of trust property.
Every state has a statute of limitation on when a beneficiary can file a breach of trust against the trustee.
If you believe that a trustee who has legal title of trust property has been abusing his/her position as a trustee, you should strongly consider hiring an estate attorney. Your attorney can help you gather evidence and take the necessary action against the trustee to ensure that the trustee does not further damage the assets of the estate.