A breach of fiduciary duty is what happens when a business leader breaks their legal promise to act in the best interests of the company, typically by prioritizing their own. This often comes at the expense of the company.
When business leaders abuse their position of trust, they may face serious legal consequences. This includes:
- Paying for financial losses from lost profits and damaged reputation
- Giving up any profits made by misusing assets
- Losing their leadership position in the company
- Facing criminal charges
To minimize the risk of such breaches of trust, a guardian must learn what their fiduciary duties require of them, what steps they can take to keep assets separate and who to consult for legal advice.
Familiarize yourself with your fiduciary duties
One of the best ways to prevent a breach is to understand what being a good guardian means. This means learning about fiduciary duties:
- Duty of loyalty: Focus on the well-being of their beneficiary above their own.
- Duty of care: Make important decisions with the beneficiary’s best interests in mind.
- Duty of good faith: Act in a manner that is honest, fair and reasonable with the beneficiary.
- Duty of prudence: Protect the privacy of the beneficiary, keeping their information secure and confidential.
- Duty to disclose: Share all information that can affect their beneficiary’s interests.
A guardian who is familiar with their duties has an obligation to uphold them to the best of their abilities, ensuring that the well-being of the company takes top priority.
Always keep assets separate
Commingling fiduciary assets with personal funds can potentially lead to a breach. This is often caused by self-dealing, improper asset distribution, asset misappropriation and asset mismanagement, as all of these factors can cost beneficiaries a lot of money.
Acting with due diligence by keeping assets separate and using dedicated accounts makes accounting and auditing smoother. Being open and honest makes it easier for both parties to track their assets and monitor important transactions.
Seek professional guidance
There are many situations where beneficiaries may feel that a breach has either occurred or is likely to occur. Business leaders who are not transparent, fail to communicate or make complex transactions involving assets may cause some anxiety – especially if the benefits seem one-sided in the fiduciary’s favor.
One of the best ways to prevent breaches is to consult a legal professional. Following the advice of an attorney can help beneficiaries who are unsure of how to proceed, especially when a trustee makes questionable actions.
Consulting an attorney can also help beneficiaries who might have been misled or otherwise taken advantage of by their guardians. Guidance from legal professionals makes it easier to find signs and evidence of fiduciary breaches.