Trustee conflict of interest

Trusts Discussion
1

Trustees cannot buy trust property without an express clause permitting this.
A sole executor is proposing to sell trust property (a flat) to his spouse at market value. Can he do so?
Should he seek consent of all adult beneficiaries, and what if the residuary beneficiaries are all adults but there are non residuary beneficiaries who include minors and charities, none of whom would be adversely affected as their legacies are relatively small?

Richard Mugford
Mugford & Co Wills (Fareham) Ltd

2

The executor would need the informed consent of all the residuary beneficiaries to avoid potential allegations of breach of trust and/or an action for the setting aside of the transaction.

Even if the transaction were to be set aside in, say, 20 years, the executor’s wife would be entitled to no more that the return of her purchase monies, with any uplift in value belonging to the beneficiaries.

Paul Saunders

3

Thank you for your reply.

I now have a similar situation. The deceased died intestate with the main asset a bungalow in poor condition, suitable for major renovation. It was valued at £350,000, but after marketing there was only 2 offers: one at £200,000 and the other at £300,000. The administrator is determined to sell it to her daughter for £250,000.

  1. Does the administrator have to obtain consent of all residuary beneficiaries before selling to anyone connected with her, e.g. a daughter as much as to herself or spouse, without which it is a breach of trust?
  2. If she is insistent on proceeding as above regardless of advice, should my firm act on her instructions or should we refuse to do so?

Richard Mugford
Mugford & Co Wills (Fareham) Ltd

4
  1. Yes, and fully informed consent. I don’t think this is strictly an application of the self-dealing rule so much as a breach of the administrator’s duty not to put themselves in a position of conflict of interest. It would probably put the onus on the daughter/administrator to show that the sale was above board rather than be absolutely voidable on principle. That said, I would expect a Court to approach the circumstances as described with a great deal of suspicion and require considerable persuasion that the sale was the best financial outcome for the estate.
  2. I would say no (in the absence of clear written consent from residuary beneficiaries). If you had any role in the sale at all you would be involved in a breach of trust and there must be a risk of firm/individual liability to the residuary beneficiaries as well as potential regulatory issues.

Andrew Goodman
Osborne Clarke LLP

5

It is almost always going to be a breach of the administrator’s fiduciary duty not to accept the highest offer for an estate property without the consent of the beneficiaries, as it is clearly in the best interests of the beneficiaries to get as much as possible from the estate!

On the facts you set out, I would suggest that the administrator is almost certainly going to be held personally liable for the £50,000 loss that they are intent on causing the beneficiaries. Plus their combined legal costs should she be foolish enough to force them to get a court order.

Taurean Drayak
Elliot, Bond & Banbury