“Acting in Good Faith” – What does this mean for Executors?

Posted on 15 Oct 2016

In a recent case, Court of Appeal Judge, Lord Justice Sales examined what it meant for an Executor to “act in good faith”.

Michael and Philip Noble ran a successful family business. Michael died in 2006; his Will appointing as Executors his brother Philip, his widow Gillian and the family accountant John Barnsley.

It was agreed that Philip and his family would have the business assets whilst Gillian and her family would have the rest of her late husband’s estate. The question was how much to value the business at.

Following lengthy negotiations agreement was reached, however it later became apparent that the Executors had underestimated the value of the business. Gillian and John looked to Philip for compensation and court proceeding ensued.

The basis of Gillian and John’s claims included allegations that Philip had breached his fiduciary duty as Executor particularly in regard to the information he had given them when negotiating the value of the business. The issue also arose as to whether Philip should have acted at all as he had an interest in the outcome, being a beneficiary as well as an Executor. The law generally prohibits “self-dealing” as it is difficult to show that someone has acted impartially in such a situation.

Michael’s Will had included a clause allowing his Executors to undertake transactions even if they were also beneficiaries. It is also included provision for exoneration of his Executors actions, provided that they acted in good faith.

In the first instance, the High Court Judge felt that Philip had acted in good faith and also, that Michael’s Will enabled him to act as both Executor and Beneficiary when he had an interest in the transaction; enabling him to “self-deal”.

The Court of Appeal agreed with this analysis and said that Philip had not deliberately misled Gillian and John over the value of the business. Two important points arise out of this case; one for anyone making a Will and another, for anyone acting as Executor.

The question is often asked as to who should act as an Executor and whether a professional such as a solicitor or an accountant should be appointed. The standard legal advice is that this is not necessary, however, this case does illustrate that having an impartial Executor ensures fair dealings in the administration of the estate. It also highlights that Executors can, and should be, afforded some protection in a Will if they are going to be placed in a position where they need to used their discretion or where their interest as a beneficiary may be at odds with the interest of the estate as a whole. Obtaining proper legal advice and having a Will professionally drafted is the only means of getting this right.

The other point, for Executors, is that at times, they should pause to think before taking up their role for the estate. If there is a chance that their ability to “act in good faith” could be compromised, then they should consider declining the role. A common example is where one beneficiary which wishes to purchase their late parents’ property from their siblings and agreement then has to be reached as to the value of that property. In such a circumstance, it may be better for all family members for there to be an impartial or professional Executor involved.

By Siân Thompson – Solicitor specialising in matters of Probate Law such as Wills, Trusts & Estates. She is a court-appointed Deputy for clients under the Court of Protection and also acts as a professional trustee and attorney, as well as being STEP qualified and a full member of Solicitors for the Elderly.