A fiduciary relationship is a legal relationship between two or more parties characterized by good faith and trust. In a fiduciary relationship the principal grants confidence, trust, good faith, and reliance in another whose aid, advice or protection is sought in some capacity. Usually we think of a fiduciary as someone who has control over, access to, and the responsibility for another person’s money or assets. Examples of these fiduciary relationships include the personal representative of an estate, a trustee managing funds held in trust for a beneficiary, guardians, or someone using a power of attorney to utilize the assets of another person. Some fiduciary relationship are more elusive but nonetheless existent as a matter of law. Bankers, real estate agents, attorneys, and even certain types of caregivers are also considered fiduciaries.
The fiduciary duty is one of the highest legal duties one can undertake. A fiduciary has a strict legal duty of care in managing another person’s assets and is legally bound to act as a reasonable and prudent person would under the circumstances when managing another person’s assets. A fiduciary owes a duty of loyalty, care, and full disclosure to the principal.
In most cases a fiduciary is able to fulfill their legal duties to the principal and all parties are satisfied in the outcomes. However, when a fiduciary relationship irrevocably breaks down the results can be disastrous to all parties involved. Problems in the fiduciary relationship usually arise when a beneficiary and a fiduciary disagree as to whether a particular decision made by the fiduciary was reasonable and prudent. The law allows for certain claims to filed against fiduciaries in a court of law. A principal or beneficiary can file a claim for fiduciary misconduct if he or she can show that the fiduciary breached their legal duty to the principal. A dissatisfied beneficiary may also petition the court to seek the removal of a fiduciary. In cases involving fiduciary fraud or dishonestly that result in the loss of assets a fiduciary can be held personally responsible and be ordered by the court to pay back the misappropriated assets.
Many potentially serious problems with fiduciaries and fiduciary duties can be eliminated by simply having a discussion with a trusted attorney who is familiar with fiduciary duties prior to entering any fiduciary relationship. Your attorney can advise you as to precisely what is expected of you in the fiduciary relationship. Once you know what is expected you can better decide if you are qualified to undertake the duties and responsibilities. Similarly, if you need to appoint a person to a position that has a fiduciary obligation you should first consult with a trusted and experienced attorney specializing in fiduciary matters who will advise you what standard of fiduciary care you should expect from a person prior to asking them to undertake a position having a fiduciary duty.