Can a Beneficiary Challenge a Fiduciary’s Actions?

The fiduciary-beneficiary relationship is one of trust. The fiduciary has a duty to act in the beneficiary’s best interest and must exercise a degree of care that a reasonable person would under similar circumstances. If the beneficiary believes that the fiduciary has breached this duty, can they challenge the fiduciary’s actions in court? The McLendon v. McLendon, No. 862 S.W.2d 662 (Tex. App. – Dallas 1993) helps to answer this question

Facts & Procedural History

The decedent and her husband possessed assets within the US and in foreign countries. The majority of their holdings, however, where in two companies – one was a Texas general partnership (where she was a general partner) and the other a Texas limited partnership (where she was a limited partner).

Upon her passing, her grandson and a long-time employee of the decedent’s company were named as the independent co-executors of the decedent’s estate. As co-executors, they amended portions of the partnership agreements. As a result, the grandson’s sisters sued him and the co-executor on claims that they breached their fiduciary duty and the validity of their amended partnership agreements.

Fiduciaries and Fiduciary Relationships

A fiduciary is someone who is entrusted with the care of another person’s money or property. In Texas, a fiduciary can be appointed by a court to manage the affairs of someone who is unable to do so themselves, such as a minor child or an incapacitated adult. The fiduciary has a duty to act in the best interests of the person they are representing, and must exercise a standard of care that is higher than that of a normal person in a similar situation.

A fiduciary relationship involves one party, the fiduciary, being entrusted with managing money or property for another party, the beneficiary. Common fiduciary roles include:

  • Executors – Responsible for administering a decedent’s estate
  • Trustees – Manage assets held in trust for beneficiaries
  • Guardians – Appointed by court to manage affairs of minors or incapacitated adults
  • Financial Advisors – Manage client investments and provide financial guidance

A hallmark of fiduciary relationships is the heightened duty owed to beneficiaries. Fiduciaries must act solely in the beneficiaries’ interests.

Fiduciary Duties in Texas

Under Texas law, fiduciaries owe strong duties to beneficiaries, including:

  • Duty of Loyalty – Must avoid conflicts of interest or self-dealing
  • Duty of Prudence – Must manage assets as a prudent person would in similar circumstances
  • Duty of Disclosure – Must provide full and accurate information to beneficiaries
  • Duty to Account – Must provide accountings of all transactions and management

Fiduciaries must exercise a high degree of care and diligence in performing their obligations. Their actions should uphold the beneficiaries’ best interests.

Grounds for Challenging a Fiduciary in Texas

Texas law allows beneficiaries to challenge fiduciaries for actions like:

  • Self-dealing for personal benefit
  • Mismanaging or squandering assets
  • Failing to provide required accountings or disclosures
  • Acting negligently or without reasonable prudence
  • Ignoring the beneficiaries’ best interests
  • Favoring certain beneficiaries over others
  • Conflicts of interest or divided loyalties

Beneficiaries should first seek resolution directly with the fiduciary if possible. But filing a legal petition is appropriate if fiduciary violations persist.

Consequences for Breach of Fiduciary Duty

If a fiduciary breaches their duty, the harmed beneficiary can bring legal action against the fiduciary for misconduct. Remedies available include:

The court will examine whether the fiduciary lived up to their high standard of care based on the relationship of trust with the beneficiary. Even good faith errors may constitute a breach if the fiduciary should have known their conduct could harm the beneficiary.

In regards to the case, the courts found the co-executors guilty of breaching their fiduciary duty to the decedent’s estate and at the expense of other beneficiaries. This resulted in awarding the sisters attorneys fees, actual damages, and punitive damages to them.

Evidentiary Considerations

Proof of fiduciary misconduct may include:

  • Documentation – Account records, financial statements, court filings
  • Witness Testimony – Statements by those familiar with fiduciary’s actions
  • Expert Testimony – Opinions evaluating prudence of fiduciary’s conduct
  • Circumstantial Evidence – Conduct suggesting intentional violations or negligence
  • Legal Presumptions – Burden may shift to fiduciary to disprove breach if self-dealing shown

Beneficiaries should gather as much concrete evidence as possible to support their claims. Courts won’t remove fiduciaries without adequate proof of misconduct or unfitness.

The Takeaway

As the case shows, the fiduciary’s duty in Texas is to diligently pursue the beneficiaries’ interests with honesty, care, and loyalty. Beneficiaries should not hesitate to invoke legal remedies against wayward fiduciaries in order to protect their interests and ensure the fiduciary relationship retains its integrity. With good evidence and reasoned legal arguments, beneficiaries can overcome fiduciary breaches under Texas law.

Do you need help with a probate matter in Austin or the surrounding area?  We are Austin probate attorneys.  We help clients navigate the probate process.   Call today for a free confidential consultation, 512-273-7444.

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The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.

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