In Michigan’s probate process, individuals such as personal representatives of an estate, guardians, and trustees are designated as fiduciaries. These fiduciaries are legally bound to uphold the highest standards of legal and ethical conduct. Failure to do so may result in legal action for breach of fiduciary duty.
Under Michigan law, a fiduciary duty arises when one individual entrusts another with a particular financial or transactional responsibility.
A breach of fiduciary duty in Michigan can be claimed under specific conditions:
- Establishment of a fiduciary relationship.
- Clear evidence of a breach of fiduciary duty.
- Demonstrable causation linking the breach to the plaintiff’s alleged damages.
Michigan law, similar to the principles outlined in the landmark case Quinn v. Phipps, recognizes breach of fiduciary duty lawsuits if it can be shown that one party has assumed the responsibility to act in the best interest of another, especially in a situation where there is an imbalance of power or knowledge.
What is Breach of Fiduciary Duty?
Michigan Law defines fiduciary relationships. This definition clearly states that in a fiduciary relationship one person must carry out their duties to benefit others. A number of fiduciary relationships apply to estate administration. Basically, a fiduciary is a person or an institution you choose to handle your estate and carry out the terms of your will and trust.
When an individual dies intestate, without a will or trust, the court may assign a fiduciary to settle financial matters. Fiduciaries include: trustees, executors, and your agents assigned as powers of attorney. Each assigned individual, or organization must follow the decedent’s wishes.
Fiduciaries are bound by law to distribute the estate according to the terms of the will or trust document. However, when a fiduciary fails to honestly and adequately perform duties, court action may become necessary.
Estate Fiduciary Duties
Duties depend upon the role assigned in estate documents. For example, the person assigned as power of attorney does not distribute assets. Usually, the executor of a will, or the trustee performs the following:
- Locating and appraising all assets
- Paying all bills and debts
- Paying taxes
- Locating and notifying all heirs
- Preparing report for probate court if necessary
- Distributing all monies from the estate
- Distributing other possessions, assets, and material goods
An estate planning attorney may guide you through this process. With small, simple estates families often work together without an attorney. However, even with smaller estates, if probate court is involved it remains wise to contact an attorney.
What Constitutes a Breach of Fiduciary Duty?
A breach of fiduciary duty occurs when an executor, organization, or trustee fails to follow the terms of an estate planning document. One example involves family members observing dishonest behavior regarding the recently deceased possession distribution. For instance, if an executor sells a $25,000 car from the estate to one of his children for $100, this may be a breach of fiduciary duty. Of course, if the executor inherited the automobile he is free to do whatever he wants with it. However, if the car was part of the proceeds from the estate and needed to be “split” among others, selling it for such a reduced price is unethical and a breach. So, any time one uses property for their own self-serving interests and ignores the other beneficiaries, there is a breach of fiduciary duty.
Another type of breach may happen if the person or organization handling the estate pays themselves an exorbitant sum of money. Usually, there is a fee for handling an estate. Your attorney may advise you on this matter. In fact, some folks place a compensatory amount right in the will or trust. However, some family members refuse the money and handle their loved one’s affairs out of honor, duty, love, and respect. In other words, it remains a personal choice.
One additional breach of fiduciary duty involves time. All estate matters should be handled in a timely manner. Of course, the people handling financial matters must make sure all bills and taxes are paid before distributing final payments to heirs. Yet, if the matter appears to linger on, legal advice may be necessary to speed up the process.
What Should Families Do When They Suspect a Breach of Fiduciary Duty?
When families suspect dishonesty or poorly executed trust administration they may hire a lawyer and go to court. Each case is different and Michigan Courts decide the best course which may include:
- Appointing a special trustee
- Removing the current trustee or executor
- Ordering the current estate administrator to do their job
- Reduce the compensation the trustee will receive
On the other hand, if you are the executor, organization, or trustee and someone falsely accuses you of mishandling estate assets, hire an experienced attorney immediately. Sadly, folks want control of deceased loved ones assets and they may resent the fact that you were “chosen” in this role. So, keep all paperwork and financial documents. Keeping records protects you from any false accusations.
Choosing a Fiduciary
An estate plan is a vital document. Perhaps one of the most important decisions a person makes is who to appoint as executor or trustee. It remains vital to choose an honest person that has always been trustworthy. This way, your wishes will be carried out. Once again, an experienced estate attorney helps with estate planning documents and any disputes that arise regarding breach of fiduciary duty.
Common Scenarios Of Breach Of Fiduciary Duty
Certain situations commonly raise concerns about a potential breach of fiduciary duty:
- Suspected self-dealing by the trustee, guardian, or personal representative, such as selling or renting estate property to acquaintances at below-market rates or using estate assets for personal benefit.
- Payment of excessive compensation to the trustee, guardian, or personal representative, which is considered a breach despite their entitlement to reasonable compensation.
- Improper investment decisions made by the fiduciary.
- Allegations of intentional misappropriation of estate assets by the fiduciary.
Defending Against Breach Of Fiduciary Duty Claims In Michigan
The primary defense in a breach of fiduciary duty case is to substantiate that the fiduciary’s actions were compliant with Michigan law and aligned with the governing documents of their role, like a will or trust. For example, the fiduciary might be accused of making poor investment choices, but upon judicial review, these decisions could be deemed as prudent and appropriate.
Fiduciaries in Michigan can also resort to various other defenses. One is the equitable defense of laches, which argues against the timeliness of the claim. Another defense is the statute of limitations, as claims filed after a certain period may be barred by law. Additionally, situation-specific defenses using exculpatory clauses or accounting release provisions can be effective.
Many trusts include self-executing accounting release provisions that protect fiduciaries from liability for their actions if no objections are raised by beneficiaries within a set period. Exculpatory clauses may limit fiduciary liability for unintentional errors, offering protection from breach of fiduciary duty claims.
Given the complexities of fiduciary agreements, it’s highly recommended that such agreements in Michigan are drafted with the assistance of an experienced probate attorney. This ensures robust protection and defense for fiduciaries against allegations of breaching their duties.