I am the Executor of an Estate and I would like to purchase Property from the Estate. Will I fall foul of the Self-Dealing Rule?
- AuthorKate Twigg
It can be quite common for a lay Executor to wish to purchase property from an Estate particularly where that Executor is also a beneficiary. Most people don't realise that there is a rule that can prevent a transaction of that type from being valid.
An Executor owes a fiduciary duty to the beneficiaries of an estate. This means that they must act solely in the best interests of the beneficiaries. An Executor is, therefore, prohibited from making a profit from the estate and putting themselves in a position where their interests conflict with their duties as an Executor.
The self-dealing rule applies where an Executor or Trustee wishes to either buy an estate or trust asset or where a Trustee sells their own property to the trust. Transactions of these type are contrary to the duty to avoid conflict of interests and duty not to exploit a fiduciary position for profit.
If an Executor sells estate or trust property to themselves the sale is voidable by any beneficiary regardless of how fair the transaction may be. A beneficiary can set the transaction aside unless the Executor, according to the case of Tito v Waddel, can show they have not taken advantage of their position, they have made a full disclosure to the beneficiaries and the transaction is fair and honest. The Executor cannot sell the property to a third party on the understanding that the third party will then sell to the Executor.
Executors should also take care when selling an asset to a buyer who is related to them in some way.
There are some exceptions to the self-dealing rule:
- Authority in the Will. This authority can be express or implied authority
- Agreement of the Beneficiaries. In order for this exemption to apply:
a. All of the Beneficiaries, being over 18 and with full mental capacity, authorise the transaction.
b. The Beneficiaries between them are fully entitled to the Estate.
c. The Beneficiaries freely give their authority after full disclosure by the Executor.
- Authorisation from the Court. In the absence of valid consent from the beneficiaries or if one or more of them are minors, the safest course of action for an Executor is to seek the authority of the Court. The Court will authorise the transaction only if the Executor establishes that the sale and terms are for the benefit of the beneficiaries.
Caution should be exercised where an Executor wishes to purchase Estate property and the appropriate legal advice should be sought.
If you need legal advice for any Wills, Trusts & Probate matter please contact our specialist Wills, Trusts & Probate team.