Estate Trustees are considered fiduciaries. According to Professor Waters in Waters Law of Trusts: “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside.”The common law is very clear that fiduciaries have an exclusive duty of loyalty to the beneficiaries. That is why fiduciaries are forbidden from dealing with estate property for their own benefit, regardless of how honest or fair the purchase may be (the “self-dealing rule”). 

Is a Purchase of Estate Property Always a Breach of Fiduciary Duty?

There are many court decisions that suggest that Estate Trustees cannot buy estate property even if they act honestly because the Estate Trustee cannot possibly act impartially when their own interests are at odds with the estate’s interests. Those cases would suggest that any such purchase is a breach of fiduciary duty, and the deal can later be set aside by a court even if the purchase was reasonable and the beneficiaries were not harmed. 

For example, in Randall v. Walwyn Estate, [1990] O.J. No. 1608, the Court commented on an Estate Trustee’s ability to purchase property from the estate when the agreement was formed before the testator’s death: “The issue before me is whether the Applicant was an executrix and trustee of the estate at the time of the sale, and, if so, whether she breached her fiduciary duty by purchasing the property without prior Court approval and at a $5,000.00 reduction in the appraisal value.” This case affirms that while agreements and contracts formed before the testator’s death are not invalidated by the purchaser assuming the role of Estate Trustee, the Estate Trustee’s fiduciary duty to the estate may otherwise be an impediment to their purchase of estate property.   

Other Courts have considered the Estate Trustee’s duty of loyalty as being intended to prevent actual harm to the beneficiaries. If there is no harm, and the trustee’s actions are otherwise reasonable, then these cases suggest there may be some flexibility that would permit the purchase. Examples include Re Nathanson (1971), 18 DLR (3de) 495 (NSTD), and Mochan v Omega Oil & Gas Ltd, [1988] 1 SCR 348 (SCC). In one instance, the trustee showed he unsuccessfully tried to find a buyer and the sale was in the best interests of the estate. In the other, it was clear the price was fair and those to whom the fiduciary duty was owed consented to the sale with full knowledge.

An exception to the general prohibition is where transactions involving the Estate Trustee are authorized by an express power in the trust instrument. A power in a will that gives an Estate Trustee the power to purchase estate property will, however, be strictly construed by the Court: Jochem v MacPherson, 2010 CarswellOnt 8771 (Ont SCJ). 

What Should Estate Trustees Do in Order to Protect Themselves from Liability?

Fiduciaries who wish to purchase trust property should first and foremost consult their lawyer. 

At a minimum, the Estate Trustee should make full disclosure to beneficiaries and obtain their consent to the sale of trust property to the trustee. It would be prudent for all the beneficiaries to obtain independent legal advice. In addition, the purchase price should be somewhat more than fair market value. With all these factors present, the Estate Trustee is in the best position to seek preapproval of the sale from the Court before any transaction takes place. The Estate Trustee who attempts to complete the transaction without Court approval exposes themself to a fair amount of ongoing risk. 

Thanks for reading,

Ian Hull and Marie Kazmer