Tag: fiduciary obligation
Broadly speaking, a trustee cannot personally profit from his or her role as a trustee. “Profit” can mean a variety of things. One way in which a trustee could potentially profit from a trust is through the purchase of trust property.
A trustee may not purchase trust assets unless there is an express power in the Will or trust instrument allowing a trustee to do so, or if the purchase is approved by the court. Even where a trustee has the express power to purchase trust assets, he or she must still act in accordance with his or her fiduciary obligations to the beneficiaries of the trust or estate. Additionally, a trustee who has been authorized to purchase trust assets would be well-advised to obtain consents and releases from the beneficiaries, or to consider seeking court approval in any event, given that such a situation is ripe for claims that the trustee breached his or her fiduciary duty.
The court should only approve the sale of trust property to a trustee where the sale is clearly to the advantage of the beneficiaries. Demonstrating that a sale is clearly advantageous to the beneficiaries can be difficult, as it is not enough to just show that the purchase price is fair. For instance, even if a trustee has offered a fair price, if there is another purchaser who is willing to purchase the asset for a greater price, the trustee’s purchase will not be to the advantage of the beneficiaries.
The problem with a trustee purchasing trust assets is that in doing so, he or she is practically putting him or herself in an irreconcilable conflict of interest: the trustee has a duty to maximize the value of the trust assets for the beneficiaries, but in his or her personal capacity, will want to minimize the price paid for an asset. A trustee seeking to purchase trust property will need to ensure that he or she has taken sufficient steps to satisfy the court that he or she has maximized the value of the asset.
In Re Ballard Estate, (1993) 20 O.R. (3d) 189, a trustee, S, obtained certain option rights to purchase trust property. The trustees obtained two valuations of the property in question, and S and the other trustees negotiated a purchase price for the property in question at the upper end of the range of values pursuant to the valuations. However, the property was not offered for sale on the open market, and the trustees did not take steps to identify other potential purchasers. The court found that the trustees could have done more to ensure the maximum value was obtained for the asset, stating that the trustees should have taken “all reasonable positive steps to ferret out the best price”. Trustees cannot avoid their obligation to maximize the value of the assets by taking a passive stance and hoping that other potential purchasers will find them.
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