A breach of fiduciary duty is a legal term that refers to a situation in which someone who owes a fiduciary duty to another person fails to act in that party’s best interests.
A fiduciary duty is a legal obligation to act in the best interests of another party, typically based on a special relationship of trust.
There can be different kinds of relationships that fit this legal term, for example:
- A trustee and a beneficiary
- An attorney and a client
- A financial advisor and a client
- A corporate officer and the shareholders of the company
In other words, it is a legal relationship in which one individual promises another person that when they act on their behalf, they will fulfill their duty according to their wishes, with integrity and loyalty.
Types of breaches of fiduciary duty include:
- Using the relationship to enrich themselves at the expense of the other person who owns the assets.
- Failing to disclose necessary and material information that could have affected the other person’s decision-making at the time of choosing them as their fiduciary.
- Acting in their own interest rather than the interest of the other party.
- Misusing confidential information that the other party entrusted them with.
A breach of fiduciary duty can give rise to a lawsuit seeking damages and other remedies. The specific remedies available depend on the nature and extent of the violation and the jurisdiction.
In estate planning, if a trustee breaches their fiduciary duty toward a beneficiary, the beneficiary can be negatively affected.
For example, suppose the trustee uses funds from a beneficiary’s trust for themselves. In that situation, the beneficiary can suffer a significant financial loss and can file a legal claim against the trustee for breaching the trustee’s legal obligation toward the beneficiary.
Breaches of fiduciary duty happen frequently, and they can not only harm a beneficiary but also the public at large. When breaches happen too often, the legal obligation of the fiduciary is undermined and that can have a negative impact on everyone.