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Understanding fiduciary duties

On Behalf of | May 12, 2022 | Estate Planning

Many estate plans require the person who owns the assets of the estate to place significant trust in another person to take possession of the assets and to manage them in a manner that does not violate the trustee’s duty of care to the person creating the trust (called the principal) and to the beneficiaries of the trust. That duty of care is referred to as a fiduciary duty.

The definition of fiduciary duty

New York statutes contain a specific definition of fiduciary duty. The standard of care that must be satisfied by all persons in a position of trust to another is defined as observing “the standard of care that would be observed by a prudent person dealing with the property of another.” This somewhat broad (and perhaps vague) definition has been given greater detail in other provisions of the statute.

A fiduciary must keep the trust property separate from any other property owned or controlled by the trustee and must keep adequate records of trust property, including receipts, disbursements and any transactions in which the trustee is acting for the principal.

The courts of New York have added to the definition of fiduciary duty over many decades. The duty can best be understood as an absolute duty of care toward the principal’s assets and the beneficiary’s interest in those assets. The trustee can never act in their own interests; the interests of the trust and the beneficiaries always come first.

Breaches of fiduciary duty

Some specific examples of breaches of fiduciary duty include making false statements to the principal, any of the beneficiaries, and the court. A second example is failing to make honest and timely reports on the status of trust assets to the principal, any of the beneficiaries, or the court. A third example is modifying the terms of a proposed transaction to confer benefit on the trustee instead of on the trust or beneficiaries.

Consulting an estate planning attorney

Courts have devised different definitions of a breach of fiduciary duty for different situations. Anyone with questions about whether a trustee has breached a fiduciary duty may wish to consult an experienced estate planning attorney for an evaluation of the evidence and an opinion on whether the trustee’s conduct failed to live up to the definition of fiduciary duty.