Assigning decision-making authority to someone in an estate plan is not a decision to make lightly. Someone who can make decisions on another person’s behalf can affect everything from living arrangements to property ownership.
One of the duties that someone in a decision-making capacity typically has is a fiduciary duty. This is the obligation to make financial choices based solely on the principal’s or beneficiary’s best interests. In some cases, a fiduciary does not or cannot fulfill this responsibility, resulting in a breach. Below are some examples of what this might entail.
Who may be a fiduciary?
First, understand that there are various people who may have a fiduciary duty, depending on the relationship with another party. In the context of estate planning, though, fiduciary duties typically exist between:
- A trustee and a beneficiary
- A legal guardian and a ward
- A principal and an agent ( e.g., in a Power of Attorney)
Examples of breaches
A trustee, guardian, or agent may breach his/her/their/its obligation by:
- Neglecting to pay a ward’s necessary medical expenses
- Selling property against the wishes of a beneficiary
- Completing transactions that benefit the fiduciary (also called self-dealing)
- Failing to hire competent, trustworthy professionals
- Engaging in any illegal activity
This is by no means an exhaustive list of ways people may breach their fiduciary duty, but it includes some of the more common examples of breaches.
If you are creating your estate plan, you can prevent your appointed fiduciaries from breaching their duty to you in the following ways:
- Establish the relationship with a formal agreement
- Provide guiding documentation to express your wishes (like an estate plan)
- Select capable, trustworthy parties to act on your behalf
- Complete an accurate financial inventory to prevent confusion or oversights
Fiduciaries: breaches of fiduciary duty can result in severe penalties, so it is crucial to prevent and avoid them. For specific guidance on how to do this, concerned parties can consult with an attorney.