If a personal representative or trustee wishes to purchase an estate or trust property, they should always be aware of the self-dealing rule.
This rule applies to those occupying a fiduciary position (such as a personal representatives or a trustee) who propose to purchase estate or trust property. A beneficiary can look to void this transaction no matter how fair the transaction. This rule therefore effectively disables personal representatives and trustees from purchasing estate or trust property without the consent of the beneficiaries or, alternatively, the permission of the court. Those who find themselves trying to free themselves from the rule’s reach could face a difficult battle.
The self-dealing rule could be apparent in family trusts where individuals may be both trustees and beneficiaries or where beneficiaries of estates are acting as personal representatives.
Many people may not be aware of the obligations of acting in a fiduciary position, as a trustee or personal representative, and could fall prey to self-dealing.
Newey, J emphasised that the self-dealing rule is based not only upon the principle that a trustee cannot be both seller and buyer, but also upon the wider principle that a trustee must not put themselves in a position where there is a conflict or possible conflict between their interest and duty.
In the case of Kane v Radley-Kane [1999] the widow was acting in the capacity of personal representative. The estate had been valued at £96,000 which included £50,000 of unquoted shares. As the estate value was less than the statutory legacy she treated herself as being entitled to the whole of the estate and appropriated herself the shares. The widow (PR) later sold the shares for £1.13 million. The court found that the appropriation was invalid and the widow had to account to the estate.
The appropriation of the matrimonial home by the widow/PR is not in breach of the rule. The appropriation by a personal representative in or towards his or her share of residue is valid so long as it is fairly made.
The court retrospectively sanctioned a sale in the case of Mills v Mills. This case concerned the purchase of a trust of land by the trustees upon which a house was then built. This was in breach of the self-dealing rule. In cases where you have beneficiaries with conflicting views, this type of approval is unlikely.
Where a breach of the rule is identified in time, the trustee or personal representative can avoid the implications of breaching the rule by obtaining the informed consent of the beneficiaries or, where this is not possible, the sanction of the court.
An express authority in the will or trust instrument will be effective as it will be implied authority – given the fact that the testator or settlor placed the executor or trustee in a position of conflict of interest.
If you are a personal representative or trustee and you wish to purchase estate or trust property then you should:
- Firstly look to the trust instrument or will to see if the sanctioning of such a purchase is either express or implied.
- If not, then obtain the consent of all beneficiaries.
- If obtaining the beneficiaries’ consent is not possible, perhaps there are minors or unborn beneficiaries, then obtain the sanction of the court.
If the self-dealing rule applies it is effectively an absolute one. There is no statutory limitation period applicable. It is relevant if it can be shown that the beneficiary knew that the trustee was the purchaser some time ago. All that has to be proved is that the purchaser was a personal representative or trustee and that the beneficiary did not consent.
The self-dealing rule operates strictly and as noted in Tito v Waddell (No.2) [1977] the rule is ‘a severe one which will apply however honest the circumstances and fair the price’.
