Breach of Fiduciary Duty

There are special relationships that give rise to fiduciary responsibilities. When managing assets or making decisions on someone else’s behalf, a fiduciary has ethical and legal obligations to act in that person’s best interests. Fiduciary duty examples include trustee-beneficiary, attorney-client, and director-company’s shareholders.

When someone takes on the role of a fiduciary, they are held to the highest degree of loyalty and accountability. A fiduciary is in an utmost position of trust and is required by law to act in good faith and avoid conflicts of interest. Unfortunately, there are situations where a fiduciary’s actions fall below that high standard.

If you or someone you know is facing challenges with a trustee or an estate executor, legal advice is strongly recommended. Trust and estate disputes are often complex in law and facts. Don’t hesitate to reach out to Onyx Law Group today for a free consultation. Our wills and estates lawyers offer expert legal guidance and support to ensure your legal rights and financial interests are protected.

Today’s post focuses on fiduciary duties in the context of trust and estate administration. We’ll discuss important issues such as the nature of the fiduciary duty owed, red flags that can indicate a fiduciary obligation is not being met, and legal remedies where there has been a breach of fiduciary duty owed to you.

What Is a Fiduciary?

In the context of trust and estate administration, trustees and estate executors are fiduciaries. A trustee is a person appointed in a trust deed or will to hold and manage trust assets for the benefit of the trust’s beneficiaries. An executor (also known as an estate trustee) is a person appointed in a will to administer a deceased person’s estate. A trustee or estate executor owes a fiduciary obligation to the beneficiaries of the particular trust or estate.

Who Can Be a Fiduciary?

A fiduciary duty can exist in many types of special relationships. The key feature that unites these relationships is that one party (the “fiduciary”) holds some discretion or power to affect another person’s interests. When exercising the power or discretion, the fiduciary has a duty to act in the best interests of that person.

The Canadian legal system recognizes fiduciary obligations as existing in some specific types of relationships. Common examples include lawyer-client, doctor-patient, director/officer-company’s shareholders, and trustee-beneficiary. An attorney acting under a power of attorney is also bound by a fiduciary duty to act only for the benefit of the donor.  

In addition, Canadian law has developed legal tests to determine if a fiduciary duty existed in relationships that don’t fit into the recognized categories. So, in addition to the common fiduciary duty examples just mentioned, a fiduciary obligation may be owed by an agent to a principal, or an investment advisor, real estate agent, or other professionals to a client.

What Is a Fiduciary Duty?

The key characteristics of a fiduciary relationship are that the fiduciary has some discretion or power, and he or she can unilaterally exercise that power or discretion to affect a beneficiary’s interests (legal interests, economic interests, property interests, etc.). At its most basic, a fiduciary duty is the duty to exercise that power or discretion for the sole benefit of the beneficiary.

The ethical and legal obligations imposed on a fiduciary also include:

• The duty of care: A fiduciary must act with care, skill, and diligence in exercising their power and carrying out tasks associated with their role.
• The duty of good faith: A fiduciary must act with honesty and fairness.
• The duty of loyalty: A fiduciary must act exclusively in the best interests of the beneficiary. That includes avoiding conflicts of interest and not acting in their own self-interest.
• The duty of confidentiality: A fiduciary must keep information confidential unless authorized to disclose it.
• The duty of disclosure: A fiduciary must provide timely, accurate, and full disclosure to beneficiaries and not withhold information beneficiaries need to make informed decisions about their best interests.
• The duty to act within their authority: A fiduciary’s authority is often set out in a written legal document, such as a last will and testament, power of attorney, or a trust deed. There are also restrictions on authority in statues (e.g., BC’s Trustee Act).

Beyond those overarching duties, the scope of the fiduciary duty will vary based on factors such as the relationship, the parties involved, and the context.

What Qualifies as a Breach of Fiduciary Duty?

A breach of fiduciary duty occurs when a fiduciary fails to uphold their ethical and legal obligations. Wrongful actions that can qualify as a breach of fiduciary duty include misappropriating funds from bank accounts, mismanaging estate or trust assets, and personally benefiting from the estate property or trust assets (“self-dealing”).

A fiduciary’s actions can land them in hot water, but so can omissions or failures to act. For example, failure to distribute assets to beneficiaries, lack of communication with beneficiaries, withholding crucial information from beneficiaries, and failure to provide a proper accounting to beneficiaries can amount to a breach of fiduciary duty.

Common Breaches in Trust and Estate Administration

Trust and estate administration does not always go smoothly. It’s important to be on the lookout for red flags and potential conflicts that can indicate a breach of fiduciary duty occurred, such as:

• Failing to distribute assets or take steps to fulfill their duties: failure (or refusal) to promptly distribute assets to the beneficiaries as required by the will, trust, or the law.
• Mismanagement of estate or trust assets: using funds for personal gain, withdrawing money from bank accounts without authorization, failing to properly invest trust assets, misappropriating funds from a trust or estate, commingling trust/estate funds with personal funds, etc.
• Failure to remain neutral: a trustee or executor must not favour one beneficiary over another beneficiary (including favouring him/herself over other beneficiaries), unless the will or trust deed allows it. This is known as the “even-hand” rule.
• Acting in their own self-interest: an executor or trustee may have a personal interest that conflicts with their fiduciary duty (e.g., the executor has a claim against the estate, or the estate has a claim against the executor).
• Failing to communicate: an executor or trustee must keep beneficiaries reasonably updated about the status of the estate or trust and any major decision made, and they can’t withhold crucial information from beneficiaries.
• Failing to provide a proper accounting: executors and trustees have a duty to keep accurate records and provide detailed, regular accounting of all transactions to beneficiaries.
• Failing to manage estate debts: an executor has a duty to pay estate debts and liabilities, and to pursue debts, liabilities, and in some cases, legal claims, on behalf of the estate to recover money or property.
• Self-dealing: transactions that personally benefit the trustee, executor, or others close to them are prohibited.

Of course, that list is not exhaustive. If you suspect that an executor or trustee has acted contrary to their fiduciary obligation, reach out to our estate and trust litigation lawyers. We can review the circumstances, determine whether the actions taken by the executor or trustee violate his or her duty, and advise you on legal options and remedies.

What Happens if a Trustee or Executor Breaches Their Duty?

When a fiduciary fails to meet the duties imposed on them, it can cause significant losses and damages to the person or people who trusted them to act in their best interests. Beneficiaries may also suffer needless delay, loss of inheritance, resulting damage to personal relationships, increased legal expenses, and undue stress.

Potential Legal Consequences

It’s a serious violation for an executor or trustee to breach their fiduciary duty. Accordingly, there can be severe legal consequences when a breach of fiduciary duty occurs. In extreme cases, a fiduciary can face criminal charges (fraud, theft, etc.)

An executor or trustee who breaches the fiduciary duty owed to beneficiaries can also be subject to legal action brought by the beneficiaries. If the legal challenge is successful, there are several possible outcomes, depending on the nature of the defendant’s breach and their ability to fulfill their duties.

For example, the court can order the fiduciary to provide a detailed account of transactions, investments, or distributions. If the accounting shows that there has been misconduct, the executor or trustee can be held personally liable for the resulting damages or losses flowing from the breach.

The court can order that improperly obtained funds or profits be given to the beneficiary. In some situations, the court can impose a constructive trust, so the beneficiary has a proprietary interest in specific assets or property that they were unfairly deprived of. Punitive damages can also be awarded in fiduciary duty claims to punish the wrongdoer and denounce their behaviour.

Where a serious violation of fiduciary duty occurs, the court can order that the trustee or executor be removed. Unreasonable delay, failure to act, dishonesty, conflict of interest, and mismanagement of assets are types of misconduct that may constitute grounds to remove an executor or trustee to protect the interests of beneficiaries. It’s noteworthy that the existence of friction or hostility between the fiduciary and one or more beneficiaries is generally not sufficient on its own to warrant the removal of the fiduciary.

There can be other consequences. For example, an executor or trustee may be disentitled to their fees. Incompetence on the part of an executor or trustee and the success (or lack thereof) achieved in the administration of a trust or estate can impact the remuneration a fiduciary receives.

What Should Beneficiaries Do if They Suspect a Breach?

There are steps you can take if you suspect potential conflicts or that a trustee or executor has breached their duty to act in your best interests.

Review the Will or Trust Documents

Look at the legal document that granted the power/authority to the fiduciary. Check for any clauses related to their duties, including how they should handle investments, distributions, communication, etc. Check for specific instructions on how to address a breach or mismanagement, if outlined in the legal document. Take note of any timelines for distributions or financial reporting that the fiduciary should have followed.

Monitor and Document Any Irregularities

Maintain a detailed log of conversations with the trustee or executor, including dates and what was discussed. Track any missing payments or assets that should have been distributed. Keep copies of financial statements, bank account statements, tax returns, and correspondence.

Contact the Trustee for Clarification

Sometimes, a frank conversation can provide a lot of clarity. Politely request an accounting and an explanation of any issues you’ve noticed. Ask for clarification regarding any delays or irregularities and document all communication in case it’s needed later.

Consult a Trust and Estate Attorney

Trust and estate disputes tend to be highly complex. It can be difficult to prove that a breach of fiduciary duty has occurred, especially if the executor or trustee is being secretive or concealing information.

Legal advice is strongly recommended. You should look for an attorney with specific experience handling trust disputes, breaches of fiduciary duty, and estate administration issues. A skilled lawyer at Onyx Law Group can review the circumstances and relevant documents, provide you with an opinion on whether a breach has occurred, and advise you on available options to address the breach.

Your lawyer can communicate with the fiduciary on your behalf and negotiate a resolution if appropriate. The involvement of a legal professional can be very effective in ending troubling conduct.

Consider Mediation or Take Legal Action

Some cases can be resolved by direct conversation and negotiation between the parties, with the help of legal counsel. Mediation and other alternative dispute resolution options should also be considered. A mediator can help facilitate communication between the fiduciary and the beneficiaries to reach a settlement. Your lawyer can help you gather evidence and advocate on your behalf at the mediation.

Legal action may also be necessary. With your lawyer’s help, you can file a lawsuit to remedy the breach of fiduciary duty, remove the executor/trustee, seek damages, etc. Your lawyer will guide you on the legal steps, required evidence, and what to expect during the litigation process.

How Long Do You Have to File a Breach of Fiduciary Duty Lawsuit?

In British Columbia, the basic rule is that a lawsuit must be started within two years of the day the claim was discovered. However, there are exceptions to the basic rule. For example, the limitation period may be extended if the fiduciary concealed information from beneficiaries or committed fraud.

If the applicable limitation period is missed, the right to bring legal action may be lost forever. You should get legal advice without delay so you don’t miss the opportunity to bring a court case to address a fiduciary’s actions.

Need Legal Assistance for a Breach of Fiduciary Duty?

If you have suffered a loss at the hands of a fiduciary who was supposed to be acting in your best interests, the Vancouver trust and estate lawyers at Onyx Law Group are here to help. A conversation with an experienced lawyer can help you determine whether the actions taken by the executor or trustee violated duties owed to you and whether commencing legal action is in your best interests.

At Onyx Law, we approach our trust and estate litigation practice knowing that every case is unique and every client deserves understanding and compassion. The team at Onyx Law Group is committed to fully understanding your concerns, and we’re dedicated to offering legal solutions to meet your personal and practical objectives.

We believe it’s important to know your legal rights and obligations before making any decisions. That’s why we offer 30-minute free consultations to give you the opportunity to discuss your matter with a passionate and knowledgeable lawyer who can advise you on the best steps forward.