When someone dies, they entrust their executor with settling their affairs and distributing their estate in accordance with their wishes. To facilitate this, executors need access to all of the deceased’s assets, including their money and property. The law seeks to protect beneficiaries’ interests by imposing strict legal duties and rules on executors. One such rule is known as ‘the rule against self-dealing’, which applies when executors wish to buy estate property.
What is the rule against self-dealing?
The duties imposed on executors include acting in the beneficiaries’ best interests and not putting themselves in a position where their personal interests conflict with those of the beneficiaries. When an executor wishes to purchase estate property, a clear potential conflict arises. As executor, they must act in the beneficiaries’ best interests and maximise the estate’s value. As a purchaser, it is in their own interests to secure the best possible purchase price for the property. To address this potential issue, the rule against self-dealing prohibits an executor from buying estate property, even at a fair market value.
What are the implications of ignoring the rule against self-dealing?
The implications of ignoring the rule against self-dealing can be severe. The beneficiaries are at liberty to void the transaction at any point in the future, even if they suffered no loss and were initially amenable to the purchase.
How can you avoid the rule against self-dealing?
There are many reasons why an executor may wish to buy estate property. For example, if the executor is the deceased’s child, they might want to buy the family home. There are several ways in which executors can proceed with a purchase without falling foul of the rule against self-dealing. They include the following:
Relying on wording in the deceased’s Will: If the Will includes a clause expressly excluding the rule against self-dealing, an executor may be able to purchase estate property. However, the wording must be exceptionally clear and unequivocal, and executors must exercise caution when seeking to rely on such a clause.
Seeking the beneficiaries’ ‘informed consent’: If all beneficiaries agree to the purchase, they can approve it by giving their ‘informed consent’. This involves each beneficiary receiving proper legal advice and the parties following the relevant legal procedures.
Asking for the Court’s approval: The Court can authorise a sale of estate property to an executor. However, this is not a mere ‘tick-box’ exercise; the Court will decide each case on its facts.
The rule against self-dealing is often overlooked by executors, but its effects can be potent and far-reaching. To ensure compliance, you should always seek expert legal advice before purchasing property belonging to an estate of which you are executor, even if there is a clause in the deceased’s Will purporting to exclude the rule.
