Trustee Conflict of Interest: No-Conflict and No-Profit Rules
Trustees must not let personal interests conflict with their duty to beneficiaries, nor profit from their position without authorisation. These strict fiduciary rules apply even where the trustee acts in good faith and the trust suffers no loss — Boardman v Phipps [1967].
The Two Core Fiduciary Rules
No-conflict rule
A trustee must not place themselves in a position where personal interests conflict — or may conflict — with their duty to beneficiaries.
Applies even where the trustee acts honestly and the beneficiaries suffer no loss.
No-profit rule
A trustee must not make a personal profit from their position without the informed consent of all beneficiaries or express trust authority.
Boardman v Phipps [1967] UKHL: liability to account even for good-faith profit.
Frequently Asked Questions
What is the no-conflict rule for trustees?
The no-conflict rule is a core fiduciary duty: a trustee must not place themselves in a position where their personal interests conflict — or may conflict — with their duty to the beneficiaries. The rule applies even where the trustee acts honestly and the beneficiaries suffer no loss. It is a prophylactic rule designed to prevent the risk of conflict, not merely to remedy actual abuse. Practical examples: a trustee who votes on a trust investment in a company in which they own shares; a trustee who awards a contract to their own business; a trustee-executor who proposes to purchase estate assets at below-market value. Any conflict must be declared and managed — typically by the trustee stepping aside from the relevant decision, obtaining beneficiary consent, or having the will include an express conflict-of-interest clause.
What is the no-profit rule for trustees?
The no-profit rule provides that a trustee must not make a personal profit from their position without the informed consent of all beneficiaries (or express authorisation in the trust instrument or will). The rule applies even if the profit arises without any breach of duty, and even if the trust could not itself have made the same profit. The leading authority is Boardman v Phipps [1967] UKHL: a solicitor acting for a trust used confidential information obtained in that role to make a personal profit through a company acquisition. The House of Lords held that he was liable to account to the trust for the profit, despite acting in good faith and benefiting the trust along the way. The strict rule protects the integrity of the fiduciary relationship. A trustee who is also a solicitor or accountant can receive reasonable remuneration only if there is an express charging clause in the will or trust deed.
What is the self-dealing rule for trustees?
The self-dealing rule is a specific application of the no-conflict rule: a trustee who purchases trust property is on both sides of the transaction and cannot validly complete it without proper authorisation. Any such purchase is voidable by any beneficiary regardless of the price paid — the transaction is not void (it does not automatically fail) but can be set aside by beneficiaries as of right. This is the same rule that applies to executor self-dealing (Tito v Waddell [1977]). The three ways to validate a self-dealing transaction: (1) all adult beneficiaries with full information give informed consent; (2) the will or trust deed contains an express power permitting the trustee to deal; (3) the court authorises the transaction (required if there are minor or unborn beneficiaries). The fair-dealing rule is less strict: it applies when a trustee purchases a beneficiary's own beneficial interest from them — this is voidable only if the trustee failed to make full disclosure and did not pay a fair price.
How can trustee conflicts of interest be managed legitimately?
There are several recognised methods for managing trustee conflicts: (1) Declaration and recusal: the conflicted trustee declares the conflict and takes no part in the relevant decision — the remaining trustees decide alone; (2) Beneficiary consent: all adult beneficiaries with full capacity give fully informed written consent to the conflicted transaction; (3) Express authority in the will or trust deed: the will may include a conflict-of-interest clause authorising a trustee to act despite a specified conflict (for example, authorising a professional trustee to charge fees or a trustee to retain shares in a family company); (4) Court authorisation under the Variation of Trusts Act 1958 or inherent jurisdiction: needed where there are minor or unborn beneficiaries who cannot consent; (5) Resignation: where the conflict is ongoing and unavoidable, the trustee should consider resigning and being replaced. Professional trustees (solicitors, accountants, trust corporations) typically have express charging clauses and conflict-management procedures in place.
What remedies are available when a trustee has a conflict of interest?
If a trustee has acted in a conflict situation without proper authorisation, beneficiaries have several potential remedies: (1) Account of profits: the trustee must account for and pay over any profit made from the conflicted transaction — the remedy from Boardman v Phipps [1967]; (2) Voidance of the transaction: if the trustee purchased trust property, any beneficiary can apply to have the transaction set aside (self-dealing rule); (3) Equitable compensation: if the beneficiaries suffered a loss as a result of the conflict, they can claim compensation; (4) Removal: the court can remove a trustee whose conduct demonstrates they are not fit to continue — conflict of interest is grounds for removal under the court's inherent jurisdiction (Letterstedt v Broers [1884]); (5) Injunction: to prevent a conflicted transaction being completed. Beneficiaries do not need to show the trustee acted in bad faith — the strict fiduciary standard does not require dishonesty.
Choose Trustees Who Understand Their Duties
The trustees you appoint in your will carry strict fiduciary responsibilities. Including a conflict-management clause in your will can prevent problems. WillSafe kit from £19.97.