What is the Self-dealing rule in estate administration?

What is the Self-dealing rule in estate administration?

We take a look at the rule against self-dealing in estate administration. Executors who are dealing with the administration of an estate after someone’s death need to be careful not to breach the rules designed to protect beneficiaries. This includes not buying assets from the estate.

Known as self-dealing, buying assets from an estate if you are a personal representative can mean that you have breached the trust that your position requires. We take a look at what self-dealing is and how to properly deal with the situation if you are winding up the estate of a loved one.

What is an estate administration?

After a death, an executor or administrator has the task of finalising the deceased’s affairs. This includes valuing and selling the deceased’s assets, preparing detailed estate accounts then distributing the estate to the beneficiaries named in the Will or, if there is no Will, in accordance with the Rules of Intestacy.

Can an executor or administrator buy an asset from the estate they are administering?

In some cases, an executor may want to buy something from the estate. For example, where the deceased’s son or daughter is the executor, they might want to purchase their parents’ home so that it stays in the family.

A problem arises with this because of the rule against self-dealing. This prevents an executor, administrator or trustee from dealing with assets held in the estate or trust, to include buying them, even at full market value.

The reason for the rule is that an executor or administrator should always act in the best interests of the beneficiaries. By buying an asset from the estate and therefore having a personal interest in the estate, they have a conflict of interest.

The implications of self-dealing

If an executor does buy a property from the estate they are administering, then a beneficiary has the right to object to the transaction. They can do this at any stage, including long into the future. The beneficiary does not have to demonstrate that they suffered any loss from the self-dealing and they may have agreed to the sale at the time.

This means that buying a property from an estate you are administering might not be advisable. However, there may be other options open to you.

How to avoid the self-dealing rule

If the person making the Will was aware that their executor might want to be able to buy the property, then they could have asked their solicitor to word the Will in such a way that the rule against self-dealing is excluded. The transaction still needs to be approached with caution and it must be clear that the Will intends to allow the executor to buy property from the estate. It will also be important to follow a set process, including obtaining a proper market value for the asset.

If the Will does not have this precise wording, then it may be possible for the beneficiaries to give informed consent. This is more than simply putting their agreement in writing and it will be necessary to be able to show that they had independent legal advice before agreeing and that the proper procedure for giving consent was followed, to include full disclosure of all the details of the proposed transaction by the executor.

It may also be possible to appoint another individual as executor to the Will instead, provided the person appointed in the Will has not taken any steps to start the administration. This could be a professional executor such as a probate solicitor if there is no-one else suitable to take on the role.

A final option is to seek the consent of the court to the purchase. The court may refuse to grant consent, particularly if any of the beneficiaries are minor children or adults who lack the mental capacity to manage their own affairs.

Read our other posts on estate administration on our News page.

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