An executor or administrator of an estate “self-deals” when they purchase the assets of the same estate for which they are a personal representative. In the recent decision of Dewberry Estate (Re), 2023 BCSC 1325, the BC Supreme Court considered self-dealing and when it may be allowed.
The decision concerned the estate of William Dewberry, who died in August 2016 without leaving a will. The deceased had no surviving spouse. His daughter, Angela Dewberry, is the administrator of the estate (the “Administrator”). She planned to distribute the estate in equal shares to herself and her two sisters.
The only significant remaining assets of the estate were a two-acre property in Port McNeill and the manufactured home sitting on it (the “Property”). A February 2017 appraisal estimated the market value of the Property to be $170,000. The Property was listed for sale four months later for $185,000, but the highest offer received was only for $155,000. The Property was then withdrawn from the market. Three more appraisals followed. The first two were in March 2020, at $152,000 and $145,000. A final appraisal in March 2023 concluded the Property had risen in value to $284,000.
The Parties’ Positions
The Administrator was emotionally attached to the Property and sought to purchase it from the estate. Although she negotiated with her sisters over the years, the siblings struggled over the purchase price. As a result, the Administrator applied for an order authorizing the sale of the property to herself for $179,600. She essentially applied for permission to self-deal.
The Administrator had moved onto the Property in late 2017. While she did not pay rent to the estate, she claimed to have spent money to keep the mortgage in good standing, made payments on the secured line of credit, insured the property, and paid taxes and utility bills. She also asserted she spent considerable time and money repairing and maintaining the property.
Among other things, the Administrator relied on her personal contributions and “sweat equity” to justify her proposed purchase price, which was more than $100,000 below the March 2023 appraisal. She claimed her sisters would be unjustly enriched if she were to pay any more.
The sisters took the position that there was no basis on which to reduce the purchase price below current fair market value.
The Court’s Analysis
The Court began by noting that the general rule is that a trustee cannot purchase trust property. This rule against self-dealing reflects a trustee’s fiduciary duty of loyalty to the beneficiaries, as the disposal of trust property to the trustee is a conflict of interest.
There are, however, exceptions to this general rule. Where the court approves, or where all beneficiaries are of full capacity and provide fully informed consent, self-dealing may be authorized. The trustee has the burden of proving that the sale is necessary and that no other purchaser is forthcoming or likely to come forward within a reasonable time. The trustee must also establish that their own offer is a favorable one and clearly advantageous to the beneficiaries. In the absence of such circumstances, there is no obligation on the beneficiaries to consent to self-dealing.
The Court dismissed the Administrator’s application. First, the other beneficiaries did not consent to the self-dealing at the Administrator’s proposed price point. Second, there was no authority that would allow the Court to approve a sale of trust property to a trustee below market value simply because the trustee helped preserve the property’s value. Third, the proposed sale at more than $100,000 below the most recent appraisal was not “clearly advantageous” to the beneficiaries. Fourth, the Administrator failed to establish that no other purchaser was likely to come forward within a reasonable time, or that her own offer was a favorable one.
A personal representative cannot “deal” with themselves. If a personal representative wishes to purchase estate assets, it should be with the consent of all beneficiaries or occur at fair market value with the approval of the court.
If you have any questions or are looking for guidance around these types of issues, please reach out to a member of our Estates & Trusts Group.