BREACH OF FIDUCIARY DUTY – WHO DO YOU TRUST?
As attorneys, we all know what a fiduciary relationship is. Certain other relationships are also fiduciary as a matter of law, including trustee/beneficiary and principal/agent. Recent cases have confirmed that an agent under a property power of attorney stands in a fiduciary relationship to the principal as a matter of law. In all other cases, a fiduciary relationship is not presumed, even between husband and wife, parent and child, and child and parent and must be established based on the facts of the particular case. “A fiduciary relationship exists when one person places trust and confidence in another who, as a result, gains influence and superiority over the other. The factors to consider in determining whether a fiduciary relationship exists between parties include the degree of kinship, the disparity in age, health, mental condition, education, and business experience, and the degree of trust placed in the dominant party. When the fiduciary relationship does not arise as a matter of law, it must be proved by clear and convincing evidence.”
Fiduciary relationships and breaches of fiduciary duty arise often in contested Probate matters. A breach of fiduciary duty is sometimes considered to be a particular type of undue influence. “In certain instances, the law will raise a rebuttable presumption that the will was executed as a result of undue influence. Where a fiduciary relationship exists between the testator and the devisee who receives a substantial benefit from the will, and where the testator is the dependent and the devisee the dominant party and the testator reposes trust and confidence in the devisee, and where the will is written or its preparation procured by that devisee, proof of these facts establishes prima facie the charge that the execution of the will was the result of undue influence exercised by that beneficiary.” “The burden of proving the fairness of the transaction, after a full and complete disclosure, is on the dominant party.” The foregoing quotes refer to receiving benefits under a will, but the applicable law is the same with regard to wills and will contests, lifetime gifts, and any other circumstances when a fiduciary benefits from the relationship.
Stop and reflect for a minute. Has this ever happened to you? Someone (perhaps an existing client) contacts you to ask if you will prepare a will for his or her parent. The parent acting solely on his or her own then wants to leave a greater share to that child. Even if that is not undue influence, it sure looks like it! You also prepare a power of attorney for property. You have just created a fiduciary relationship as a matter of law! After the parent dies, the estate will seek to recover the excess benefit going to the agent/child. Now, instead of the decedent’s other children having to first prove the existence of a fiduciary relationship by clear and convincing evidence, the burden of proof is on the child instead, and the burden of proof often decides this kind of case. After the death of the transferor, the recipient is usually hard-pressed to prove the donor’s intent with admissible evidence.
Practical Suggestion 1: Whenever assets are missing from an estate, you should look for any fiduciary relationship. If you can establish the relationship and shift the burden of proof, you may have won the case. If you find a property power of attorney naming the transferee as agent, you have hit paydirt!
Practical Suggestion 2: The best way to avoid later fights is at the planning stage. When you meet with a client to prepare a will, be alert for any relationship that may be deemed “fiduciary,” either because of the facts or as a matter of law. Wherever you find one or wherever one heir, legatee, or other individual will receive a disproportionate share of the estate (either through Probate or otherwise), I suggest you do two things. First, state clearly in the document what is being done and why. It may not prevent an attack, but it will go a long way to discourage one. Second, make notes or other contemporary records to document the client’s position. You will probably be called as a witness if the matter ever does go to litigation. You and your file may be the difference between your client’s intent being carried out and a successful challenge that yields a contrary result.
© 1999 by Cary A. Lind, all rights reserved