Fiduciary conflicts of interest can complicate relationships between fiduciaries and beneficiaries. A fiduciary is entrusted with managing another person’s assets, and their duty is to act in the best interests of the beneficiary.
When a fiduciary’s interests conflict with those of the beneficiary, the situation requires careful attention and resolution. Understanding how these conflicts arise and how to resolve them under Texas law is helpful.
Identify the conflict of interest
A fiduciary conflict of interest occurs when a fiduciary has personal interests that might influence their decisions. For instance, a trustee who stands to gain from the assets they manage might face a conflict. The first step in resolving such conflicts is recognizing them. A fiduciary must disclose any potential conflicts of interest to the beneficiary, ensuring transparency. If the fiduciary fails to disclose a conflict, it could lead to legal consequences.
Texas law on fiduciary conflicts
Under Texas law, fiduciaries are required to avoid conflicts of interest. Texas Estates Code § 113.059(b) stresses that fiduciaries must act with loyalty and impartiality, placing the beneficiary’s interest above their own. If a conflict arises, Texas law allows for remedies, such as removing the fiduciary or requesting a court’s intervention to resolve the issue. The court may also order the fiduciary to make restitution if they have acted inappropriately due to the conflict.
Resolving the conflict
To resolve fiduciary conflicts of interest, the fiduciary must often take corrective actions. These may include recusing themselves from decisions where a conflict exists, seeking the approval of beneficiaries, or involving a third-party mediator. In some cases, it may be necessary to replace the fiduciary altogether if they cannot act impartially. Courts may get involved to enforce fiduciary duties or resolve disputes when necessary.
Addressing fiduciary conflicts is essential for maintaining trust in fiduciary relationships. Prompt resolution ensures that the beneficiary’s interests remain the top priority and upholds the integrity of the fiduciary role.