Legal term
Rule against self-dealing
Answer: Rule against self-dealing. In trust law, the rule against self-dealing is a strict application of the duty of loyalty: a trustee may not enter a transaction in which the trustee stands on both sides or otherwise gains personal benefit from trust assets. Such transactions are per se voidable at the beneficiaries’ option under the no-further-inquiry rule. Courts emphasize that fairness or lack of harm does not save the transaction. See sources and quotations below.
Rule to remember
Rule against self-dealing: a trust-law doctrine prohibiting a trustee from engaging in self-interested transactions with trust property; under the no-further-inquiry rule, such transactions are per se voidable by the beneficiaries regardless of fairness.
Key elements and checks
- Fiduciary status: the actor is serving as trustee when the transaction occurs.
- Conflicted transaction: trustee stands on both sides (e.g., buying from or selling to the trust) or otherwise uses trust assets for personal gain.
- Per se effect: transaction is voidable at beneficiaries’ option without proof of unreasonableness, harm, or bad faith.
- Remedies commonly include rescission, surcharge, and disgorgement.
- Fair price or benefit to the estate is irrelevant to liability under this doctrine.
- Limited carve-outs: many jurisdictions recognize authorization by the governing instrument, applicable law, or court approval (illustrated by Arizona’s regulation).
In the source’s words
“It makes all self-dealing transactions entered into by the trustee per se voidable by the beneficiaries.”
No Further Inquiry Rule | Wex | LII
“It is a well-settled rule that a trustee can make no profit out of his trust.”
Magruder v. Drury, 235 U.S. 106 (1914) | LII
State variation: Many states codify or articulate this doctrine through statutes, UTC-based provisions, or administrative rules. Some jurisdictions permit conflicted transactions only if expressly authorized by the instrument, statute, or court order; remedies and procedures for approval vary.