Self-dealing rule Definition

GLOSSARY

What does Self-dealing rule mean?

If a trustee sells trust property to himself the sale is voidable by any beneficiary however fair the transaction.

A trustee must not put himself in a position where his duty and interest conflict or possibly conflict. Where the rule applies the trustee and his successors in title (other than a bona fide purchaser of the legal estate for value without notice) take a voidable title and a beneficiary is entitled to have the transaction set aside.

View the related practice notes about Self-dealing rule

Trustees—self-dealing, unauthorised profits and conflicts of interest

The self-dealing ruleThe self-dealing rule is connected to, but distinct from, the fair dealing rule as well as the genuine transaction rule. There is authority that the rules are not, on a correct analysis, part of the duties or discretions of a trustee; rather they are restrictions which inhibit a trustee from acting in certain ways. This has important consequences in terms of limitation of any action against trustees by beneficiaries.The rule against self-dealing encompasses several slightly different rules which were considered in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe:•a trustee cannot make a contract with themselves (subject to statutory exception) so any attempt to do so is ineffective—this was described in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe as the primitive self-dealing rule, although it has also been described as the two-party rule•a trustee's power of sale cannot validly be exercised in their own favour (subject to any contrary provision in the trust instrument)—this was described in Right Reverend Hollis (Bishop of Portsmouth) v Rolfe as the...

Personal representatives and trustees—power of appropriation

Appropriation is a process by which a personal representative (PR) or a trustee uses a specific asset in the estate or trust fund to meet, in full or in part, a beneficiary’s entitlement or interest.Personal representatives' common law and statutory power of appropriationPRs have a power of appropriation under the common law over any part of the residuary estate (but not a fund) which may be exercised with the consent of the beneficiary, in or towards satisfaction of a vested legacy or a share of residue, even if payable at a future time. This does not extend to a contingent legacy unless it carries the right to the intermediate income. The power extends to both real and personal property whether or not that property is subject to a trust for conversion. The common law power does not extend to PRs appropriating unauthorised investments.PRs have a statutory power of appropriation under section 41 of the Administration of Estates Act 1925 (AEA 1925) which allows PRs to appropriate any part of the...

Discover our 16 Practice Notes on Self-dealing rule

Is there an authority which covers the circumstances in which an executor cannot recover their expenses from the estate?

Is there an authority which covers the circumstances in which an executor cannot recover their expenses from the estate? The executors are entitled to reimburse themselves from the estate for any necessary expenses which they incur. If the value of the estate were to be insufficient to meet those expenses, the executors would not be able to recover the shortfall. If the expenses were not necessarily incurred or if the amount of the expenses is unreasonable (for example if the costs of travelling by car were to be claimed at an unduly high rate per mile) then the executors may be in breach of the self dealing rule. To avoid such a conflict of interest, an executor should apply for an order of the court under CPR 64.2 approving any questionable transaction, or obtain the written consent of all the beneficiaries affected by the transaction provided that they are of full age, under no disability and are absolutely

A is the executor of their late mother's Will, which is dated 1974 and contains no administrative provisions. The residue is split equally among six beneficiaries, one of which is A. The only remaining asset within the estate is a parcel of land. A wants to buy out the other beneficiaries to own the land themselves but some of the beneficiaries want to retain their interest in the land. Can A override the wishes of the beneficiaries and transfer the land to themselves, in return for paying to each beneficiary a sum of money equal to their share of the market value of the land? Would the situation be different if A wanted to sell the land on the open market rather than have it transferred to themselves?

A is the executor of their late mother's Will, which is dated 1974 and contains no administrative provisions. The residue is split equally among six beneficiaries, one of which is A. The only remaining asset within the estate is a parcel of land. A wants to buy out the other beneficiaries to own the land themselves but some of the beneficiaries want to retain their interest in the land. Can A override the wishes of the beneficiaries and transfer the land to themselves, in return for paying to each beneficiary a sum of money equal to their share of the market value of the land? Would the situation be different if A wanted to sell the land on the open market rather than have it transferred to themselves? We refer you to Practice Note: Personal representatives and trustees—power of appropriation, which states the following in respect of appropriation: Self-dealing There is no express prohibition in section 41 of the Administration of Estates Act 1925 (AEA 1925)...

See the 8 Q&As about Self-dealing rule

Private Client weekly highlights—16 March 2023

This week’s edition of Private Client highlights includes: (1) Spring Budget 2023 and Finance Bill (No 2) 2023; (2) The Law Society announcement on updated HMCTS processes for probate applications; (3) The Executors of the Estate of Peter John Linington and The Trustees of The Kent Trust v HMRC, which concerned a failed IHT scheme involving the purchase of excluded property trust interests; (4) Robson v HMRC, in which the FTT found that discovery assessments were invalid where the taxpayer’s agent was not authorised to file tax returns; (5) HMRC has amended its trust and company service provider guidance to reflect MLRs, and (6) Question of the week, a new occasional feature.

Jersey court applies English law in case concerning trustees’ self-dealing (In the matter of the 1964 Settlement)

Private Client analysis: These related decisions concern trustees of family settlements who asked the court in Jersey to confer on them a power to self-deal between settlements–ordinarily prohibited by a rule of equity. Where settlements have the same trustees or have some overlapping trustees (or have corporate trustees with the same or some overlapping directors), selling assets between one settlement and another attracts the prohibition: the transactions may be set aside. The Jersey court held that since these settlements were governed by English law it had to apply English law and that it could act under section 57 of the Trustee Act 1925 (TA 1925), which authorises ‘the court’ to confer additional powers on trustees, even though it was not an English court. It also approved a proposal from the trustees designed to remedy some past self-dealing. Written by Nicholas Le Poidevin QC, barrister, at New Square Chambers.

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