Legal Definitions - fiduciary duty

A fiduciary duty is a legal obligation for one person or entity (the fiduciary) to act in the best interests of another person or entity (the beneficiary or principal). This duty arises from a special relationship of trust and confidence, where the fiduciary is entrusted with managing assets, making decisions, or providing advice that significantly impacts the beneficiary. The fiduciary must prioritize the beneficiary's welfare above their own personal interests, avoiding conflicts of interest and exercising care and loyalty.

Here are some examples illustrating fiduciary duty:

• Financial Advisor to a Client: Imagine a financial advisor, Maria, who manages the investment portfolio for her client, David. Maria has a fiduciary duty to David. This means she must recommend investment strategies and products that are genuinely best for David's financial goals and risk tolerance, even if those recommendations result in lower commissions for her. She cannot advise David to invest in a fund simply because she receives a bonus for selling that specific product, as that would be a conflict of interest and a breach of her duty.

• Executor of an Estate to Beneficiaries: When a person passes away, an individual is often appointed as the executor of their will, responsible for managing the deceased's assets and distributing them to the heirs. This executor has a fiduciary duty to the estate's beneficiaries. For example, if Sarah is the executor of her uncle's estate, she must meticulously follow the instructions in the will, ensuring all debts are paid and assets are distributed fairly and accurately to the rightful heirs. She cannot use estate funds for her personal expenses, sell estate property to a friend at a reduced price, or delay distributions to benefit herself, as these actions would violate her duty to act solely in the beneficiaries' best interests.

• Board Member of a Homeowners' Association (HOA) to Residents: The elected board members of a homeowners' association have a fiduciary duty to all the residents of the community. This means they must make decisions regarding community finances, maintenance, and rules that are in the collective best interest of the homeowners. For instance, if the HOA board is considering bids for a new roofing project, they must choose the contractor that offers the best value and quality for the community, not a contractor owned by a board member's relative who charges more or provides inferior service. Their decisions must prioritize the well-being and financial health of the association and its members.