Probate Lawyer: What to Disclose Within a Fiduciary Relationship

A fiduciary relationship is a legal and ethical relationship between two parties in which one party (the fiduciary) has a duty to act in the other party’s best interests (the beneficiary). The fiduciary, or probate lawyer, gets entrusted with managing the affairs, assets, or interests of the beneficiary and should exercise a high degree of care, loyalty, and good faith in carrying out their duties.

Fiduciary relationships can arise in various contexts, including business partnerships, corporate governance, trust agreements, attorney-client relationships, and even personal relationships where one person assumes responsibility for the care of another person, such as a guardian caring for a minor or an elderly person.

In a fiduciary relationship, the fiduciary must put the beneficiary’s interests ahead of their own, avoid any conflicts of interest, and act honestly and transparently. This means that the fiduciary must make decisions that are in the beneficiary’s best interest, disclose any potential conflicts of interest, and ensure that any actions taken are fair and reasonable. The fiduciary must also keep accurate records, provide regular updates to the beneficiary, and seek the beneficiary’s input and consent when appropriate.

The fiduciary relationship is based on trust and confidence; the beneficiary relies on the fiduciary to act in their best interest. Any breach of this duty can result in serious consequences, including legal liability and reputational harm. Therefore, it is important for both parties to understand their roles and responsibilities in the fiduciary relationship and to maintain open communication and transparency throughout the relationship.

What to Disclose Through Your Probate Lawyer

As a rule, the fiduciary must disclose all reasonably relevant information to the beneficiary’s interests. This includes information about the assets or finances getting managed and any conflicts of interest or potential conflicts of interest that may arise. The fiduciary must also provide regular updates to the beneficiary about the status of the assets or finances being managed and any decisions made.

In addition to these general requirements, certain specific types of information must get disclosed within a fiduciary relationship. For example, suppose the fiduciary manages an investment portfolio for the beneficiary. In that case, they must disclose information about the risks associated with each investment and any fees or commissions that may get charged. If the fiduciary is managing a trust, they must disclose the terms of the trust, the beneficiaries of the trust, and any restrictions on the use of the trust assets.

Other types of information that may need to get disclosed within a fiduciary relationship include:

Confidential Information

If the beneficiary has shared confidential information with the fiduciary, the fiduciary must take steps to protect that information and keep it confidential. If the fiduciary needs to disclose the information to a third party, they must obtain the beneficiary’s consent first.

Changes in Circumstances

If there are any changes in the beneficiary’s circumstances that could affect the management of the assets or finances, the fiduciary must get informed of these changes. For example, suppose the beneficiary becomes incapacitated or develops a medical condition that affects their decision-making abilities. In that case, the fiduciary must get informed so that they can adjust their management accordingly.

Conflicts of Interest

If the fiduciary has a conflict of interest that could affect their management of the assets or finances, they must disclose this to the beneficiary. For example, if the fiduciary stands to benefit financially from a particular investment, they must disclose this conflict of interest and obtain the beneficiary’s consent before proceeding.

Legal Obligations

If the fiduciary is subject to any legal obligations that could affect their management of the assets or finances, they must disclose these obligations to the beneficiary. For example, if the fiduciary is required to comply with certain tax laws or regulations, they must disclose this to the beneficiary.

What Not to Disclose

Certain information may be withheld from the other party to protect their best interests in a fiduciary relationship. These include:

Privileged Information

Privileged information refers to confidential communications between two parties protected by law from getting disclosed in court or other legal proceedings. Such information is typically shared in the context of a confidential relationship, such as a doctor-patient relationship, attorney-client relationship, or priest-penitent relationship.

In the context of a fiduciary relationship, privileged information may refer to sensitive or confidential information that gets shared between the parties but that should not get disclosed to third parties. For example, if a client discloses that they have engaged in illegal activity to their financial advisor, the financial advisor will get obligated to keep that information confidential and not disclose it to anyone, including law enforcement. Similarly, if an attorney learns that their client has committed a crime, they may get prohibited from disclosing that information to anyone outside of the attorney-client relationship.

It is important to note that privileged information is not absolute, and there are circumstances where it may get required to be disclosed, such as when there is a threat of harm to someone else. However, privileged information is generally protected and should not get disclosed without the client’s consent.

Trade Secrets

If a fiduciary has access to trade secrets as part of their duties, they have a legal obligation to keep this information confidential. This obligation extends beyond the duration of the fiduciary relationship and may get enforced through legal action if the information gets misused or disclosed without proper authorization.

Trade secrets are often protected through non-disclosure agreements (NDAs) or confidentiality agreements. These agreements get designed to ensure that the recipient of the information agrees to keep it confidential and not to use it for any purpose other than the one stated in the agreement. If a fiduciary violates an NDA or confidentiality agreement, they may be subject to legal action and may face significant penalties.

Personal Information

One thing that cannot get disclosed within a fiduciary relationship is personal information. This includes sensitive personal information such as medical records, social security numbers, and other personally identifiable information. The fiduciary is responsible for protecting this information and keeping it confidential, even if it may be relevant to the relationship or transaction at hand.

For example, if a client discloses medical information to their financial advisor, the advisor cannot disclose this information to anyone else, even if it may be relevant to the client’s financial situation. This is because the client has a reasonable expectation of privacy and confidentiality when sharing such information within a fiduciary relationship.

Furthermore, personal information can also include personal preferences, lifestyle choices, and other non-financial information that the client may disclose within the fiduciary relationship. This information cannot get disclosed without the client’s express consent or unless it is necessary for the fiduciary to perform their duties within the relationship.

Information That Could Harm the Other Party

The fiduciary must act in the other party’s best interests, including not sharing information that could harm them. For example, suppose the fiduciary is aware of a potential legal action against the other party. In that case, they should only disclose this information if it is necessary to protect the other party’s interests.