SQE1 Trusts practice questions

Trusts is assessed in FLK2. It covers creating an express trust (including the certainties and formalities), resulting and constructive trusts, the powers and duties of trustees, breach of trust and the remedies for it, including tracing. Key statutes include the Trustee Act 1925, the Trustee Act 2000 and the Law of Property Act 1925, which sets out the formalities for some trusts; much of the rest is case law. Every question below links to the source behind its answer.

Rules to remember

Knowing receipt requires the beneficiaries' equitable interest to subsist when the property is received; a bona fide purchaser without notice who later learns of the breach is not liable. Question L299

A person who dishonestly assists in a breach of trust is liable for the loss, whether or not the trustee was dishonest; dishonesty is judged objectively (Royal Brunei v Tan). Question L298

A claimant tracing into a mixed account can claim no more than the lowest balance the account reached after the trust money went in, absent an intention to replace it (Roscoe v Winder). Question L297

Claims for breach of trust must be brought within six years, but time does not run against a beneficiary with a future interest until it falls into possession (LA 1980 s.21(3)). Question L296

The court may relieve a trustee wholly or partly from liability for breach of trust if they acted honestly and reasonably and ought fairly to be excused (TA 1925 s.61). Question L295

A secret commission or bribe received by a fiduciary is held on trust for the principal, giving a proprietary claim that can be traced into its proceeds (FHR v Cedar). Question L294

A sale of trust property to a trustee is voidable by any beneficiary as of right, however fair the price, unless authorised or made with fully informed consent (self-dealing rule). Question L293

Under TA 1925 s.31(1)(ii), a beneficiary with a contingent interest that carries intermediate income becomes entitled to the income at 18, until the interest vests or fails. Question L292

Trustees investing must consider suitability and diversification and must obtain and consider proper advice, unless they reasonably conclude it is unnecessary or inappropriate (TA 2000 ss.4 and 5). Question L291

The appointment of a person under 18 as trustee of any settlement or trust is void, without affecting the power to appoint a new trustee (LPA 1925 s.20). Question L290

Proprietary estoppel arises where an assurance about property is reasonably relied on to the claimant's detriment, making it unconscionable for the promisor to go back on it. Question L289

In a sole-name family home case there is no presumption of shared ownership: the claimant must first prove a common intention to share beneficially, and only then is the share quantified. Question L288

Where a changed intention to hold unequally is shown but its proportions cannot be found, each party takes the share the court thinks fair, having regard to the whole course of dealing. Question L287

Where a family home is in joint names with no express declaration, the starting point is beneficial joint tenancy, displaced only by proof of a different common intention. Question L286

Where A pays for property put in B's name, B is presumed to hold it on resulting trust for A in proportion to A's contribution, unless an intention to give is shown. Question L285

Where property is transferred on express trusts that do not exhaust the whole beneficial interest, the undisposed-of interest is held on resulting trust for the transferor (Westdeutsche). Question L284

A charitable purpose must fall within a description in s.3(1) of the Charities Act 2011 and be for the public benefit, which is not presumed (ss.2 and 4). Question L283

A donor who makes an immediate gift to a trust of which they are one of the trustees is bound by it and must vest the property in all the trustees (Choithram). Question L282

An imperfect lifetime gift is perfected if the donor's intention to make an immediate gift continued until death and the donee acquires legal title as the donor's executor or administrator (Strong v Bird). Question L281

Where a donor has done everything within their own power to transfer property, the gift is complete in equity even though a third party has not yet completed the legal transfer (Re Rose). Question L280

Equity will not perfect an imperfect gift for a volunteer, and an ineffective outright gift will not be treated as a declaration of trust (Milroy v Lord). Question L279

A disposition of a subsisting equitable interest in any property must be in writing signed by the person disposing of it or their authorised agent, or by will (LPA 1925 s.53(1)(c)). Question L278

A declaration of trust of land must be manifested and proved by writing signed by the person able to declare the trust, or by will (LPA 1925 s.53(1)(b)). Question L277

A discretionary trust is valid if it can be said with certainty whether any given individual is or is not a member of the class of objects (McPhail v Doulton). Question L276

A trust of goods requires certain subject matter: where goods are unascertained and never appropriated to the buyer, no legal or equitable proprietary interest arises. Question L275

Adult beneficiaries of full capacity who are together absolutely entitled can call for the trust property and end the trust. Question 12

A trust arises only if the words, read as a whole, are imperative and show a clear intention to create a trust; words of hope or confidence attached to an absolute gift do not suffice. Question 26

For trusts created or arising after 1 October 2014, trustees may advance up to a beneficiary's whole presumptive share, even if contingent, subject to bringing it into account and any prior interest holder's consent. Question 40