What is a Fiduciary Duty and How is it Created?

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Brent D. George

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Serving Thousand Oaks, CA

  • Serving Thousand Oaks, CA

  • Free initial consultation, Credit cards accepted

Owner at firm Law Offices of Brent D. George

Serving Thousand Oaks, CA

Free initial consultation, Credit cards accepted

I am often asked about fiduciary duties. Within this article I will attempt to explain what a fiduciary duty is and how it is created. Also, I will address what your rights are in the event a fiduciary duty that is owed to you has been breached

Under the U.S. legal system, a fiduciary duty is the legal term describing the relationship between two parties that obligates one to act solely in the interest of the other. The party designated as the fiduciary owes the legal duty to a principal, and strict care is taken to ensure no conflict of interest arises between the fiduciary and his principal. In most cases, no profit is to be made from the relationship unless explicit consent is granted at the time the relationship begins. Fiduciary duties come in a variety of forms under the legal system, including but not limited to, trustee and beneficiary, guardian and ward, principal and agent, and attorney and client.

A fiduciary duty is the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary. If an individual breaches the fiduciary duties, he or she would need to account for the ill-gotten profit.

Below are some examples of situations where Fiduciary Duties exist:

Principal/Agent

A more generic example of fiduciary duty lies in the principal/agent relationship. Any individual person, corporation, partnership or government agency can act as a principal or agent as long as the person or business has the legal capacity to do so. Under a principal/agent duty, an agent is legally appointed to act on behalf of the principal without conflict of interest. A common example of a principal/agent relationship that implies fiduciary duty is a group of shareholders as principals electing management or C-suite individuals to act as agents. Similarly, investors act as principals when selecting investment fund managers as agents to manage assets.

Trustee/Beneficiary

Estate arrangements and implemented trusts involve a trustee and beneficiary fiduciary duty. An individual named as a trust or estate trustee is the fiduciary, and the beneficiary is the principal. Under a trustee/beneficiary duty, the fiduciary has legal ownership of the property and holds the power necessary to handle assets held in the name of the trust. However, the trustee must make decisions that are in the best interest of the beneficiary as the latter holds equitable title to the property. The trustee/beneficiary relationship is an important aspect of comprehensive estate planning, and special care should be taken to determine who is designated as trustee.

Guardian/Ward

Under a guardian/ward relationship, legal guardianship of a minor is transferred to an appointed adult. The guardian, as the fiduciary, is tasked with ensuring the minor child or ward has appropriate care, which can include deciding where the minor attends school, that he has suitable medical care, that he is disciplined in a reasonable manner and that his daily welfare remains intact. A guardian is appointed by the state court when the natural guardian of a minor child is not able to care for the child any longer. In most states, a guardian/ward relationship remains intact until the minor child reaches the age of majority.

Attorney/Client

The attorney/client fiduciary relationship is arguably one of the most stringent. The U.S. Supreme Court states that the highest level of trust and confidence must exist between an attorney and his client and that an attorney, as fiduciary, must act in complete fairness, loyalty and fidelity in each representation of and dealing with clients. Attorneys are held liable for breaches of their fiduciary duties by the client and are accountable to the court in which that client is represented when a breach occurs.

Breach of Fiduciary Duty

A breach of fiduciary duty occurs when the fiduciary acts in the interest of themselves, rather than the best interest of the employer or principal. A fiduciary’s actions must be free of conflicts of interest and self-dealing. As a fiduciary, you can’t use the principal for your own personal advantage. In other words, you can’t use corporate property or corporate assets for your own personal gain, nor can you take advantage of a corporate opportunity for your own personal pursuits. Depending on the actions of the fiduciary, fraud may also be an issue, but this is typically a more complex legal matter.

The question of whether a particular contractual relationship gives rise to fiduciary duties, and the nature and breadth of those fiduciary duties, depends on the specific facts of the case, and can be a complicated and uncertain analysis. An experienced business attorney can not only help you identify a potential claim for breach of fiduciary duty, but can help you marshal the facts and persuade a Court to rule in your favor.

If you feel you have been harmed in your business dealings, even if you think there was no breach of contract, don’t assume you have no remedies. If you had a reasonable expectation of loyalty and honesty, you may have a viable claim. We’re here to help!

Source: http://www.brentgeorgelaw.com/fiduciary-duty-created/

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