Fiduciary Relationship

What is the relationship between a trustee and his beneficiary? A trustee, is a person or an institution that is entrusted with the responsibility of managing the assets of the beneficiary, in the best interests of the latter. Even though, the trustee is made the legal owner of the property, through the creation of the trust fund, and the beneficiary lacks the legal title to the property, the trustee has to administer the same, in the interests of the beneficiary. In short, the trustee should not have any personal interests in the property, but, the beneficiary can enjoy the benefits from the property, without being its technical owner. The relation between the trustee and the beneficiary is a fiduciary relationship. In this case, such relationship is created by law. But, there are many instances, wherein such relationships form on an ethical basis, like, in case of attorneys and clients.

Fiduciary Relationship Definition

Let us analyze the examples given above. One is between the trustee and the beneficiary and the other is between the attorney and client. In the first case, the relation is created by law and in second, there is no legal binding. But, there is a common factor in both these relations. One is the trust and confidence of the beneficiary in the trustee/client in the attorney. On the other hand, the trustee/attorney must act for the best interests of the beneficiary or client respectively. So, a fiduciary relationship can be defined as a legal or ethical relationship, wherein one party called the fiduciary is required to act in the best interest of the other called beneficiary or principal, who reposes his/her confidence and trust on the former.

Fiduciary or Confidential Relationship

Some of these relationships, as those between the trustee and the beneficiary, legal guardian and ward, conservator and ward, etc. are legally created. There are many other fiduciary relationships that are formed on an ethical basis. They include the relation between the doctor and patient, attorney and client, teacher and student, real estate broker and buyer, financial adviser and client, etc. In case of relationships that are formed on an ethical base, there is no contract or legal binding, but, in case of disputes, court may declare that a fiduciary relationship existed between the parties. Generally, such relationships are created by law or by express interests of the parties. Such relationships along with those formed on an ethical base are jointly termed confidential relationships. All these relationships are based on the trust and confidence of the beneficiary on the fiduciary and the loyalty of the latter to the former.

In some of the legally created fiduciary relationships, the fiduciary is required to file a fiduciary bond or probate bond, so as to guarantee the performance of the obligations towards the beneficiary, in a faithful and loyal manner. In such cases, the beneficiary can sue the fiduciary, in case of fraudulent conduct, breach of duty, or taking undue personal advantage from the position as a fiduciary. In such cases, if the beneficiary proves his/her claims, then, the fiduciary may be required to pay damages. Even in case of fiduciary relationships that are based on ethics and conscience, the beneficiary may sue the fiduciary. The beneficiary has to prove an existing fiduciary relationship and a breach of fiduciary duty. If these claims are established, the fiduciary will be accountable for breach of fiduciary duty.