A fiduciary relationship is one in which a party owes the other certain obligations based on a high level of trust. While fiduciary duties often arise in business relationships, they are also an inherent part of the estate administration process. Importantly, an executor or personal representative has a fiduciary duty to act in the best interests of a decedent’s estate. Failure to do so is called a “breach” of fiduciary duty and can result in liability for the losses suffered by the aggrieved party.
What is a Fiduciary Duty in Estate Matters?
There are several scenarios in estate matters in which a fiduciary duty can arise. Such situations can include those involving the management of a trust, a guardianship, or a power of attorney. Additionally, an administrator appointed by the court or executor named in a person’s will has a fiduciary duty to the decedent’s estate.
Being a fiduciary means adhering to a higher standard of conduct, and acting with the utmost loyalty, fidelity, confidence, and trust. Critically, in the context of an estate matter, a fiduciary must place the interests of the estate and its beneficiaries above their own. A fiduciary duty of a trustee, executor, or administrator can be divided into three primary categories. These include a duty of care, a duty of loyalty, and a duty of impartiality.
Specifically, a fiduciary in estate matters has the obligation to:
- Act in good faith
- Prudently manage the assets of the estate
- Treat all beneficiaries fairly
- Use their best judgment
- Remain transparent about all relevant information
- Act honestly and reasonably
In the event a trustee or executor does not comply with the above obligations, the beneficiary of the trust or estate might have grounds to bring a legal claim for a breach of fiduciary duty.
Examples of Breach of Fiduciary Duty
If a fiduciary’s actions, or lack thereof, harm the value of the trust or estate — or the interests of the heirs — a breach of fiduciary duty may have occurred. For instance, if the executor acted in their own self-interests and disregarded the intent of the will, they may have breached their fiduciary duty to the estate. Other examples of a breach of fiduciary duty can include misappropriation of assets from a trust, selling assets at prices that are unfavorable to the estate, and failing to comply with the regulations regarding the administration of the estate.
A mistake in judgment will usually not constitute a breach, provided the fiduciary did not abuse their discretionary powers. Notably, errors in judgment that result in poor outcomes typically do not lead to liability, as long as reasonable caution, skill, and knowledge were used.
What Happens if a Trustee or Executor Breaches Their Fiduciary Duty?
If a trustee acted in bad faith and did not adhere to their obligations to carry out their fiduciary duty, they may be removed. Although there are no definitive legal criteria that set forth the degree of misconduct for removal, Illinois courts usually look to malfeasance as the determining factor. But even though the degree of bad faith is not specified under the law, if the breach of fiduciary duty involved theft or wrongful conduct, a court would likely order the trustee’s removal.
Similarly, a court might remove an executor if they committed serious misconduct in mismanaging the estate’s assets. They might also be removed if they were appointed under fraudulent pretenses or based upon a failure to file an accounting if they were ordered by the court to do so.
In addition to removal, a trustee or executor might be responsible to pay damages and the aggrieved party’s attorney’s fees. A trustee or executor may also be denied any fees that were owed to them for managing the trust or administering the estate and be ordered to pay a surcharge for any damages stemming from their wrongdoing. Surcharges generally fall into one of three categories: (1) reimbursement for loss or depreciated value; (2) reimbursement for profits made by the trustee because of the breach; and (3) reimbursement for profit that would have been made had it not been for the breach of fiduciary duty.
In limited cases, punitive damages may be awarded to the aggrieved party if the fiduciary’s conduct was particularly egregious. These damages are meant to punish the wrongdoer and serve as a deterrent to others from engaging in similar conduct.
Contact an Experienced Illinois Estate Planning Attorney
Trusts and estates matters can be complicated and highly nuanced. It’s essential to have the guidance of an experienced attorney who can help you navigate the legal process. Located in Rolling Meadows, Illinois and serving clients throughout the Northwest suburbs and Chicago area, Hess Law Firm offers skilled counsel and knowledgeable representation for a broad scope of estate planning matters. Call (847) 367-6990 or email info@hesslawfirm.com today to schedule an appointment.