The dealing rules (Breaches of fiduciary duty -FS

Question 1

When does a fiduciary breach of duty arise?

Answer 1

A fiduciary breaches their duty when they make a conscious decision that conflicts with their obligations. Omissions or unconscious actions do not constitute a breach, but strict liability applies even without bad faith.

Question 2

What is the self-dealing rule in fiduciary law?

Answer 2

The self-dealing rule prohibits a fiduciary, such as a trustee, from purchasing trust property, due to an inherent conflict of interest between their duty to the trust and personal gain.

Question 3

What is the legal effect of breaching the self-dealing rule?

Answer 3

Any transaction in breach of the self-dealing rule is voidable at the insistence of the beneficiaries, regardless of whether the trustee acted honestly or received any advantage.

Question 4

Can a trustee sell their own personal property to the trust?

Answer 4

No, this is also prohibited under the self-dealing rule, as it creates a conflict of interest between the trustee’s personal interests and fiduciary duties.

Question 5

Can a trustee retire in order to purchase trust property without breaching fiduciary duty?

Answer 5

No, even retirement does not remove the prohibition under the self-dealing rule, and the transaction would remain voidable.

Question 6

What exceptions allow a trustee to complete a transaction that would otherwise breach the self-dealing rule?

Answer 6

A trustee may proceed with such a transaction only if they obtain:

1. A court order
2. A specific provision in the trust instrument
3. Fully informed consent of all beneficiaries

Question 7

What is the fair dealing rule?

Answer 7

The fair dealing rule applies when a trustee purchases the beneficiary’s equitable interest, and the transaction is voidable unless the trustee proves full disclosure, fairness, and lack of undue influence.

Question 8

What are the requirements for a valid fair dealing transaction?

Answer 8

The trustee must prove:

1. The beneficiary knew all material facts
2. The transaction was fair and honest
3. The beneficiary acted independently, using their own judgment

Question 9

Why is the fair dealing rule less strict than the self-dealing rule?

Answer 9

Because beneficiaries are aware of their own interests and have more control over decisions involving their equitable interest, unlike legal title transactions managed solely by trustees.

Question 10

What key difference distinguishes self-dealing from fair dealing breaches?

Answer 10

Self-dealing involves a trustee transacting with trust property, triggering strict liability, while fair dealing involves transactions with beneficiaries’ interests, which are voidable unless fairness is proven.