A Strong Offense
A Stronger Defense
Yes, executors sometimes purchase estate property. But, when they do, they need to be awfully careful about breaching the fiduciary duties they owe the estate beneficiaries. It’s common to see real property deeded in equal shares to siblings, and one sibling (who is also executor) purchases his or her other siblings’ interests for an emotional reason like owning the family farm. If the executor knows something about the value of that property that the beneficiaries don’t know and intends to flip the property after acquiring the property in fee simple, that’s when problems can arise.
The key to a successful transaction is transparency and disclosure, something that allegedly did not occur in Turpin v. Lowther. In this case, the Court of Appeals of South Carolina affirmed a finding that the personal representative of an estate breached his fiduciary duties to the beneficiaries when he did not disclose to the beneficiaries that he was negotiating with third parties to sell properties belonging to the estate while he was simultaneously negotiating with the beneficiaries to purchase from them those same properties.
The appellate court shot down the fiduciary’s three defenses, but the one that most interests us involves the fiduciary’s duty to disclose information to the beneficiaries. The personal representative argued that the fiduciary duty he had to the beneficiaries didn’t apply when he purchased their interests because he distributed the properties to them in his fiduciary capacity but then purchased them in his individual capacity. In essence, the personal representative argued that the transactions through which he acquired the property occurred outside of the administration of the estate and therefore were not subject to a fiduciary duty. That was too narrow a distinction. The appellate court held that the personal representative had a fiduciary duty to disclose information affecting the value of the beneficiaries’ interests in the estate before he could negotiate the purchase of those interests. He had acquired information about the property through his fiduciary capacity which he then used in the negotiation of the sale to the third parties. Indeed, the duty to disclose was triggered at two points – when the personal representative negotiated to purchase the beneficiaries’ interests and when the beneficiaries signed the contracts to sell their interests.