Executors who are dealing with the administration of an estate after someone’s death need to be careful not to breach the legal 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 (Executor or Administrator) can mean that you have breached the duties that are attached to your position. 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.
Can an Executor or Administrator buy an asset from the estate they are administering?
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 and then distributing the estate to the beneficiaries named in the Will or, if there is no Will, in accordance with the rules of Intestacy.
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 is the rule that an Executor should not allow their personal interests to conflict with the interests of the beneficiaries of the estate, and so should not sell estate assets to themselves. For example, in this situation, it would be in the Executor’s personal interest to obtain the lowest possible purchase price for the property, whereas it would be in the beneficiaries’ best interests to sell the property for the highest possible value. The Executor has a duty to maximise the value of the estate for the beneficiaries, and therefore there is a conflict between the Executor’s duties as an Executor and their interests as an individual.
The implications of self-dealing
If an Executor does buy a property from an estate they are administering, then any 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 sale of the property to an Executor 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 valuation for the property.
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. It will also be necessary to be able to show that the proper procedure for giving consent was followed, to include full disclosure of all the details of the proposed transaction by the Executor to the beneficiaries.
It may also be possible for another individual to act as Personal Representative (in place of the Executor), provided the person appointed in the Will has not taken any steps to start the administration.
A final option is to apply to the court for consent to the purchase by the Executor. The court may refuse to grant consent, particularly if any of the beneficiaries are minor children or adults who lack the mental capacity to understand the situation or manage their own affairs.
Contact us
The duties of an Executor and Trustees are detailed and complex area of law, and it is important that if you are acting in either of these roles, that you understand your responsibilities throughout the process. This is in order to protect the Beneficiaries and yourself. If you would like advice from one of our expert Wills, Trusts and Probate lawyers, please call us 01252 733 770 or email us at privateclient@baker-law.co.uk to make an appointment at our Farnham based office.
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