When Has a California Trustee Breached His or Her Fiduciary Duty?
FIDUCIARIES MUST ACT WITH “UTMOST GOOD FAITH”
A fiduciary, like the trustee of a trust, must act with the highest degree of good faith, and for the benefit of the person or entity to whom the fiduciary owes the duty. In the case of a trustee, this means managing the trust, and the trust property, with proper care and in a manner that attempts to ensure the best interests of the beneficiaries.
A trustee also owes the trust and its beneficiaries “undivided loyalty,” a duty of confidentiality (where appropriate), and a duty to disclose all relevant information with regard to management and administration of the trust. The duty of disclosure also includes some statutory requirements, for example, when it comes to making regular, timely accountings and sending notices when and as required by the trust instrument (trust agreement) and California law.
A MATERIAL FAILURE TO COMPLY WITH ONE OR MORE FIDUCIARY REQUIREMENTS IS A BREACH OF FIDUCIARY DUTY
When a trustee fails to fulfill one or more of the elements of his or her fiduciary duty, the trustee is in breach (violation) of the fiduciary duty. For example, any of the following acts or failures to act qualifies as a breach of fiduciary duty in California (unless an exception or defense applies):
- Intentionally violating applicable law.
- e.g., failing to make a statutory accounting when due, stealing trust property
- Intentionally failing to do a required action
- e.g., failing to pay distributions to beneficiaries when required to do so by law or by the trust agreement
- Acting in a way that is contrary to the beneficiaries’ best interests
- e.g., misusing trust property, failing to disclose all material facts that the beneficiaries have a right to know
This list is not exhaustive. Any act that constitutes a violation of, or failure to comply with, a fiduciary duty owed to the trust or its beneficiaries is a breach of fiduciary duty.
FAILURE TO SHARE MATERIAL INFORMATION ALSO MAY QUALIFY AS “CONSTRUCTIVE FRAUD”
“Constructive fraud” is a form of fraud that can be proven without evidence of fraudulent intent on the part of the fiduciary. This means that if a trustee fails to disclose all of the relevant/required information to the beneficiaries, the trustee may be liable for damages if the failure to disclose causes (or results in) damage to the beneficiaries–whether or not the trustee intended to commit fraud.
In addition to liability for compensatory damages, a trustee who commits constructive fraud may have to pay punitive damages too, if the facts and circumstances warrant.
In order to avoid liability for damages (punitive and otherwise) trustees should be careful to make full, timely disclosures of all relevant information. If you are the beneficiary of a trust, and believe the trustee has not disclosed material information, or otherwise breached a fiduciary duty owed to you (and/or the other beneficiaries), consult a lawyer immediately for an evaluation of the situation and your legal rights.
(Please note, however, that the disclosure requirements apply to material information – meaning information that must be disclosed by law, or which does, or could, make a material difference to administration of the trust or the beneficiaries’ interests. If information is not material, failure to disclose it may not constitute a wrongful act or a breach of fiduciary duty.)
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