An administrator of an estate or a trustee of a trust owes fiduciary duties to that estate or trust and its beneficiaries. When a fiduciary fails to fulfill their duties in a reasonably prudent manner, a beneficiary may pursue fiduciary litigation against that administrator. The goal of this litigation may be to recover compensation for financial losses caused by the fiduciary’s actions or to remove the fiduciary from their role. Here are some of the most common causes of fiduciary litigation.
Breach of Fiduciary Duty
Estate administrators and trustees owe fiduciary duties to the estate or trust and its beneficiaries. These duties include loyalty to the estate/trust, an obligation to act in good faith and fairly with beneficiaries, and to put the interests of the estate/trust ahead of the fiduciary’s interests. However, fiduciaries of estates and trusts can breach their legal duties in various ways, such as:
- Engaging in self-dealing to benefit oneself at the expense of the estate or trust, such as by charging excessive management fees or usurping financial opportunities
- Having a conflict of interest
- Favoring one beneficiary over another without reasonable justification
- Failing to disclose material information
- Mismanaging assets
Disputes Over Management of Assets
Beneficiaries may file litigation against a fiduciary over allegations that the administrator or trustee mismanaged the estate’s or trust’s assets. Allegations of mismanagement may include failing to maintain accurate records, not maintaining assets such as real estate, embezzling funds, or making poor investment decisions. Mismanaging assets may lead to beneficiaries receiving less from the estate or trust than they would have otherwise received absent the fiduciary’s mismanagement.
Conflicts of Interest
A fiduciary may have a conflict of interest that could subject them to litigation. Examples of conflicts of interest in trust and estate management include a fiduciary acting for personal gain by receiving excessive compensation for their service or having the trust or estate engage in business transactions with entities owned by or affiliated with the fiduciary. Other conflicts of interest include favoring one beneficiary over another without a reasonable basis, such as by distributing to one beneficiary but not another. Conflicts of interest can lead to litigation to recover assets or funds improperly siphoned off by a fiduciary or to compel the fiduciary to balance out favoritism towards another beneficiary.
Alleged Fraud or Misrepresentation
Fiduciaries may face litigation for alleged fraudulent activities, such as forging documents, intentionally keeping inaccurate records, providing false or misleading information, or omitting material information. Consequences of fraudulent actions by a fiduciary can include a compensation award to the estate/trust or a beneficiary for the financial harm caused by the fiduciary’s actions or a court order removing the fiduciary from their role.
Failure to Act in Good Faith or with Due Care
Beneficiaries may file lawsuits against fiduciaries when they fail to act in good faith or with due care. This duty requires a fiduciary to take reasonable, prudent actions. Breaches of the duty to act in good faith and with due care can include consciously disregarding the adverse consequences of a specific action, failing to seek professional assistance with administration, or not acting in the beneficiaries’ best interests.
Steps to Avoid Fiduciary Litigation
Fiduciaries can reduce the risk of ending up in litigation by following critical tips such as:
- Maintaining thorough documentation of the estate’s or trust’s assets and all transactions taken on behalf of the estate/trust
- Practicing clear communication with beneficiaries and providing them with all relevant information
- Seeking professional support for complex fiduciary responsibilities, such as financial accounting, asset appraisals, investment decisions, and asserting or defending legal rights
- Conducting regular audits to maintain transparency in decision-making
Contact a Fiduciary Litigation Attorney Today
Do you believe an estate administrator or trustee has violated their fiduciary obligations? Alternatively, has a beneficiary of an estate or trust you administer accused you of breaching your fiduciary duties? In either scenario, you need experienced legal counsel to protect your rights and interests. Contact Loew Law Group today for an initial case evaluation with a fiduciary litigation lawyer to discuss your options for pursuing a favorable resolution to your litigation matter.