Executors can find themselves in a difficult position when faced with the prospect of purchasing assets from an estate, even when they are paying market rate for those assets and the other beneficiaries agree to the sale.
Being an executor is often an onerous and largely unglamorous role, which involves hours of work usually with no financial remuneration and within very stringent legal constraints. An executor has to be careful to abide by the legal duties placed on them or they can find themselves personally financially liable for financial losses flowing from any breaches.
The recent case of Caldicott v Richards [2020] illustrates the court’s strict approach to executors who purchase assets from an estate. In this case, the court considered the self-dealing rule from an earlier case Tito v Waddell (No2) [1977] that, where a trustee purchases property from a trust, the sale is voidable by any beneficiary under the trust however fair the transaction, as a matter of right and arising out of principles of justice.
An executor is a trustee because they hold the right to deal with estate assets but not necessarily also the beneficial interest (ownership) in those assets, depending on the terms of the Will. They are therefore in a position of trust and are legally obliged to handle estate assets properly and in accordance with the terms of the Will.
In the Caldicott case, the transaction was seemingly very fair to the beneficiaries under the Trust and in fact, was orchestrated by their desire to sell shares to the trustee executor because they wanted to use the proceeds of that sale for a new business venture.
Notwithstanding this, the Court concluded that the sale purchase should be set aside because the executrix had not obtained fully informed consent from the beneficiaries. The lack of informed consent related to a ‘buy-back’ option and specifically, the period within which the beneficiaries could buy the shares back from the executrix.
By way of background information, the daughter trustee of a discretionary Will trust set up by her late mother purchased a 15% shareholding in a holiday park on the Isle of Sheppy from the estate thereby reducing her brother’s ownership to 35%. The daughter already received 50% of the residuary estate under her mother’s Will and therefore, 50% of the holiday home, as did her brother, although his share had been placed into a Will Trust to put it outside the reach of the Trustee in bankruptcy. The purchase of shares by the daughter left her with a 65% majority interest in the holiday home.
The brother meanwhile had used the monies paid to him for the 15% shareholding (£200,000) for a new business venture with his wife, which was doing very nicely and in fact, it was doing so well that he now wished to buy back the 15% shareholding in the holiday park from his sister. She declined as she was enjoying running the business and had only been happy for such a buy-back situation to take place in the first two years, which had passed.
The case came before the Court and the brother argued that in purchasing the 15% shareholding from the Will Trust his sister had breached the self-dealing rule and should be removed as Trustee. The Judge agreed with him and set aside the share purchase aside although declined to remove the sister as Trustee who had not acted improperly on the whole. The Judge concluded that the self-dealing rule would only be departed from in very specific circumstances, which did not apply in this case.
Our Private Wealth team at Moore Barlow are on hand to guide you through your estate planning needs and are supported by our leading Contentious Trusts & Estates team who specialise in resolving estate disputes, no matter how complex or the issues involved. If you have a matter you would like to discuss then please contact Scott Taylor on 01483 464274 or scotttaylor@moorebarlow.com
