Trustee Self-Dealing | Curtis Parkinson
Managing Conflicts of Interest and Trustee Self-Dealing

Managing Conflicts of Interest & Trustee Self-Dealing

When a Trustee is appointed, they’re usually aware that they must take their responsibilities very seriously. They have a legal duty to act only in the best interests of the Trust’s beneficiaries. Trustees must not seek to benefit from their position as a Trustee or knowledge of the Trust’s assets or put themselves into a situation where their interests conflict with their duties as a Trustee.

However, a costly dispute may arise if they mismanage personal conflicts of interest or fail to consider the self-dealing rules.

Trustees & Trustee Self-Dealing

What is Trustee self-dealing? Fundamentally, self-dealing is using the assets of a trust for personal benefit. Even if a Trustee carries out a transaction with the best intentions and beneficiaries do not allege foul play, a Trustee can still contravene the regulations.

This attitude may seem harsh, but depending on the nature of the Trust, Trustees have considerable power over trust assets. Their role includes deciding asset distribution to beneficiaries and investing trust assets. So, it’s entirely reasonable that Trustees must always act responsibly in the eyes of the law.

Case Law & Self-Dealing

Over the years, numerous court decisions have upheld trust rules about self-dealing. The courts have made it clear that a Trustee must not derive any personal advantage from the administration of the Trust unless expressly authorised to do so. As with other types of fiduciary, judgments have underlined the need for Trustees to avoid placing themselves in a clear or potential area of personal conflict.

The rule also prevents a Trustee of multiple trusts from arranging inter-trust transactions if there’s a risk that their interests as a Trustee of one trust conflict – or may potentially conflict, with their interests as a Trustee of another trust.

There are some exceptions.

Permitted Transactions

Self-dealing is allowable if the transaction is:

  • authorised by law or a court
  • allowed under the terms of the Trust
  • fully disclosed to and approved by the beneficiaries
  • involves a conflict created by the Trust or the settlor and not by the Trustee

Beware – Pay Attention to Detail

Caldicott v Richards, 2020 EWHC 767 Ch demonstrates why Trustees should be precise and follow proper procedure. Courts have traditionally been pragmatic when examining self-dealing cases, but this case shows Trustees should follow procedure minutely, especially where a discretionary trust is involved.

Caldicott v. Richards centred around a sale of shares in a family company by the Trustees of a discretionary trust to one of the Trustees. The judge rescinded the transaction, but not because the Trustees were using assets for their benefit or had not asked for beneficiary consent.

The Trustees obtained consent from the beneficiaries but did not fully inform them. According to the judge, exceptional circumstances did not exist to justify the non-application of the rule. Consequently, the judge stopped the sale.

Our Advice

The details of this and other similar cases involving self-dealing are complex. But it’s clear that even if there is the power to self-deal written into a trust deed, Trustees need to be very aware of the risks.

Our specialist lawyers have considerable experience creating and administering trusts for our clients. If you have been affected by a similar issue or would like to speak to one of our lawyers, please get in touch with us. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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