When you work with a business partner, corporate officer, trustee, attorney or financial advisor, that relationship depends on trust. This is a fiduciary duty. You expect that person to act in your best interests because they hold important responsibilities. When they violate that trust, the consequences can become serious.
When a fiduciary fails to meet their obligations or acts against your best interest, financial losses, damaged business relationships and legal disputes can follow. For that reason, understanding fiduciary duty and recognizing a possible violation can help individuals and businesses protect their interests.
What is Fiduciary Duty?
Fiduciary duty is a legal obligation that requires one person to act in the best interests of another. The person with this responsibility is the fiduciary, while the other party is the beneficiary. A fiduciary must put the beneficiary’s interests above their own personal interests when making decisions. Because of that, fiduciary relationships require a higher level of trust and honesty than ordinary business relationships.
Examples of common fiduciary relationships include:
- Trustees and beneficiaries
- Corporate officers and shareholders
- Business partners
- Attorneys and clients
- Executors and estate beneficiaries
- Financial advisors
Key Duties Fiduciaries Owe
Obligations may vary depending on the relationship. Still, fiduciaries generally owe several core duties to their beneficiary. These duties hold fiduciaries to a higher standard because they often control important decisions, assets or information. The four key duties fiduciaries owe are loyalty, care, confidentiality and disclosure/good faith.
Duty of loyalty requires a fiduciary to act in the beneficiary’s best interests. They cannot use their position for personal gain.
Duty of care means fiduciaries must make informed, thoughtful and sensible decisions when managing another party’s affairs or assets.
Duty of confidentiality means a fiduciary must protect the beneficiary’s private information.
Duty of disclosure/good faith means the fiduciary must act with honorable and fair intentions. They must also provide complete and accurate information about risks and disclose any conflicts of interest.
When is Fiduciary Duty Violated?
A breach occurs when a fiduciary fails to meet their legal obligations and causes harm to the party they serve. This can happen intentionally or unintentionally.
Some examples of fiduciary duty violations include:
- Using company funds for personal expenses
- Hiding conflicts of interest
- Misappropriating funds
- Failing to disclose important information
- Negligent management of assets or finances
For example, a corporate officer who secretly awards contracts to a company they own may place personal interests above the corporation’s interests. As a result, they may violate their fiduciary duty.
How Can a Violation Affect You?
A fiduciary duty violation can create harm beyond a single financial loss. Victims may lose business opportunities or see reduced investment value. They may also face damaged professional relationships, costly legal disputes and the fallout from mismanaged assets.
In violation cases, courts may order the fiduciary to compensate victims for losses, return improperly obtained profits or take corrective action to address the harm.
If you believe a fiduciary acted improperly, act quickly. Delays can make evidence harder to gather and may weaken your ability to protect your rights.
Consider the following:
- Preserve relevant records and communications
- Document suspicious transactions
- Avoid destroying evidence
- Consult an attorney to evaluate your legal options
Fiduciary duty relationships and violations can get complex. Because of that, an experienced legal team can review the facts, evaluate the law and help you understand your next step.
How The Johnson Law Firm Can Help
Understanding your rights is the first step toward protecting your interests. Whether you’re a business owner, shareholder or individual who believes a fiduciary acted improperly, we can help you better understand the situation.
At The Johnson Law Firm, we help clients identify and evaluate possible breaches of fiduciary duty, pursue appropriate legal remedies and protect what matters most. If you have concerns about a fiduciary relationship, our team is here to help. Contact The Johnson Law Firm today to discuss your situation and learn more about your legal options.
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