07/22/2014 05:36 EDT | Updated 09/21/2014 05:59 EDT

Do You Trust Your Fiduciary?

A fiduciary occupies a position of trust in relation to another person. One example of such a relationship is the relationship between an incapable person and the person or persons the incapable has appointed as their Attorney for property. Because the incapable has trusted their Attorney to manage their property, the Attorney may not use the incapable's property towards their own end.

Another example of a fiduciary relationship is the relationship between an Estate Trustee and the beneficiaries of an Estate. Because the Estate Trustee usually has significant discretion to manage the assets of the Estate, he or she is in a position of trust in relation to the persons to whom the Estate's assets are to be distributed.

Accordingly, an Estate Trustee must exercise his or her discretion in the best interests of the beneficiaries. They must protect and earn money from estate property, and they should, if necessary, obtain investment advice towards these ends. In all of their activities, they must conduct themselves with honesty and loyalty towards the beneficiaries.

Estate Trustees and Attorneys must be careful not to put themselves in a conflict of interest. Even if the transaction benefits the Estate overall, strict fiduciary obligations prevent Estate Trustees from profiting from conflicts of interests.

Estate Trustees should keep detailed records of any transactions they make with estate funds, as they may be required to formally or informally account to the beneficiaries of the Estate.

Where a fiduciary duty has been breached, courts have several equitable remedies at their disposal. There are two purposes to these remedies. First, the remedy is designed to address fairness between the parties. Second, the remedy should serve to reinforce the public's confidence in the integrity of fiduciary relationships. Accordingly, when exercising its discretion, a court will not only compensate the wronged party, but also seek to uphold the obligations of good faith and loyalty.

As Gunsolus J. summarized in Hooper Estate v Hooper,

"The freedom of the fiduciary is diminished by the nature of the obligation he or she undertakes, an obligation which "betokens loyalty, good faith and avoidance of a conflict of duty in self interest." In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart."

Thus, a fiduciary who has misappropriated funds may be required to pay back the sum. Furthermore, where a fiduciary has loaned to themselves a sum of money which they subsequently paid back, they may be required to pay any profit earned from the loan or interest that the sum would have accrued had it not been loaned. A court may also order a fiduciary to pay legal costs, as opposed to the funds being paid out of the estate assets, for example.

Nevertheless, courts do not want to discourage persons from taking on fiduciary duties, as the present systems of Estate administration and substitute decision-making rely upon friends and family of the deceased or incapable. This is for good reason. Governments do not have capacity to manage the assets of every Estate, nor the property of every incapable person. Furthermore, it does not always make sense, given the value of some assets, to appoint a private trust company as a fiduciary. Finally, most persons would simply prefer that their property be managed by someone whom they know and trust as opposed to a large bureaucracy or private entity.

Given the system's reliance on persons who may be less sophisticated on matters of financial investment and law, courts are flexible when it comes to the standard a fiduciary must meet. Fiduciaries will not be liable simply because the sale of property on one date might have fetched more money on another date.

Nevertheless, it is important that fiduciaries understand their obligations and duties. They may wish to retain a lawyer to perform certain services for them or simply to ensure they are meeting their responsibilities.

*Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.


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