Estate trustees, as fiduciaries, are required to act in the best interests of the estate beneficiaries. While this is a fundamental tenet of estate law, it is essential to reiterate when analyzing the court’s approach to legal principles stemming directly from it. One such principle is the concept of “self-dealing”, or the ability of an estate trustee to purchase estate or trust property for their own personal benefit.
Self-Dealing: Executors & Trustees Cannot Purchase Estate or Trust Assets
For centuries, courts have rejected self-dealing by estate trustees as a general rule. The rationale is premised on the notion that a trustee owes loyalty to the beneficiaries and, therefore, purchasing estate property for the trustee’s benefit inherently places the trustee in a conflict of interest. As per the House of Lords in their 1842 decision of Hamilton v. Wright.
“A trustee is bound not to do anything which can place him in a position inconsistent with the interests of his trust, or which can have a tendency to interfere with his duty in discharging it. Neither the trustee nor his representative can be allowed to retain an advantage acquired in violation of this rule.”
For over a century, the Hamilton decision has been adopted and applied by Canadian courts, including the Supreme Court of Canada. The presumption against self-dealing was well summarized by Justice Cowan of the Nova Scotia Supreme Court in 1971 in the case of Re Nathanson Estate:
“It is well settled that a trustee cannot, without the authorization of the Court, sell trust property to himself. This follows from the fundamental duty owed by a trustee to the beneficiaries of a trust – the duty of loyalty. It is the duty of a trustee to administer the trust solely in the interests of the beneficiaries. He is not permitted to place himself in the position where it would be for his own benefit to violate the duty which he owes to the beneficiaries …”
There are two notable exceptions to the rejection of self-dealing:
- Circumstances where the beneficiaries consent to the trustee’s self-dealing (and the beneficiaries have the capacity to consent); or
- The court has approved the self-dealing.
Regarding the second exception, a court may approve self-dealing where a trustee can establish that no other purchaser is forthcoming or seems likely to come forward within a reasonable time period, and the trustee’s offer is favourable and to the advantage of the beneficiaries. This is a very high bar to meet.
The Supreme Court of British Columbia recently examined the principle of self-dealing in Re Dewberry Estate. The deceased, William Dewberry, died without a will. The Court appointed his daughter, Angela, to administer William’s estate. Angela had two sisters, Tracey and Elaine. As there was no will and William did not have a surviving spouse, Angela intended to distribute William’s estate between herself and her sisters in equal shares under section 23(2) of the Wills, Estates and Succession Act. Section 23 governs estate distribution in cases where the deceased dies without a will and no surviving spouse.
Following the uncontentious distribution of some nominal estate assets, the balance of William’s estate consisted of a two-acre property with a manufactured home (collectively, the “property”). Many appraisals of the property had been carried out, the most recent occurring in March 2023, which valued the property at $284,000. Angela, who had been living on the property following William’s death and spending her own money to maintain it (i.e. paying the mortgage, property taxes, utilities, etc.), brought an application seeking an order permitting her to purchase the property from the estate. She proposed to buy the property for $100,000 less than the $284,000 appraisal price on the basis that she had expended her own funds to maintain the property up to that point. At the time of the application, Tracey and Elaine were unwilling to sell the property to Angela at her proposed price.
The Court in Dewberry dismissed Angela’s application to purchase the property. The Court cited the principle that the rule against self-dealing relates to the inherent conflict between the trustee’s interests and their fiduciary duties over the estate or trust assets. The Court noted that it was unaware of any authority that would empower it to approve the sale of trust property to a trustee at a price below market value, even considering the trustee’s contributions to the preservation of that property’s value.
The Court concluded that Angela’s proposed purchase of the property, in light of all the circumstances, was not favourable for the other beneficiaries (Tracey and Elaine), nor was it to their advantage.
During the course of the proceedings, Tracey and Elaine advised the Court that they were willing to consent to sell the property for the appraisal price of $284,000, provided the sale closed within a reasonable time frame, and the net proceeds were paid into Court. As Angela, the trustee, was warming to the idea of buying the property for that price, the Court suggested the parties work through the consent process privately and prepare a consent order for the Court’s consideration if an agreement was reached.
The experienced estate litigators at Meridian Law Group are well-versed in the high legal and ethical standards that apply to estate executors and trustees. The firm advises parties in court actions relating to a fiduciary’s duties and takes swift, decisive action to secure clients’ legal rights and preserve estate assets. To schedule a confidential consultation with a member of our estate litigation team, contact us online or call 604-687-2277.