Trusts
Trusts covers the creation, operation, and enforcement of express, resulting, and constructive trusts. The topic also includes charitable trusts and cy-pres, the duties of trustees, and remedies for breach of trust including tracing. SQE1 frequently tests the three certainties, the rules on constitution, and the distinction between resulting and constructive trusts. Familiarity with the key statutory provisions — Trustee Act 2000, Charities Act 2011 — is essential.
Practise Trusts questions →What FLK2 tests in Trusts
Three Certainties
Knight v Knight [1840]: a trust requires certainty of (1) intention — clear intention to create a trust (not a merely moral obligation or precatory words such as "I wish" or "I hope"); (2) subject matter — the trust property must be identifiable; (3) objects — the beneficiaries must be identifiable (fixed trust: complete list test; discretionary trust: is or is not test per McPhail v Doulton).
Constitution of Trusts
A trust is completely constituted when the trust property is vested in the trustees or when the settlor declares themselves trustee. An incompletely constituted trust cannot be enforced by a volunteer (Milroy v Lord) — equity will not perfect an imperfect gift. Exceptions: donatio mortis causa; proprietary estoppel; Re Rose (equity treats as done what ought to be done — once settlor does all they can to transfer).
Resulting and Constructive Trusts
Resulting trusts: arise where the beneficial interest "results back" to the transferor — failed express trust; voluntary transfer of property without intent to benefit the transferee; purchase money resulting trust (where A pays but B takes title — though reversed by s.60 LPA 1925 for land). Constructive trusts: arise by operation of law — common intention constructive trust (Lloyds Bank v Rosset: express agreement + detrimental reliance OR direct contribution to purchase price); Pallant v Morgan equity; bribes and secret profits.
Charitable Trusts
Charities Act 2011: a charity must have (1) a recognised charitable purpose (s.3 — 13 categories: relief of poverty, advancement of education, religion, health, community development etc.); (2) be for the public benefit (not a closed class). Advantages: no perpetuity rule, valid purpose trusts, tax benefits. Cy-pres doctrine: if a charitable purpose fails or surplus remains, the court can apply funds to a similar purpose.
Trustees' Duties
Duty to act in accordance with the trust instrument. Trustee Act 2000: investment duties (diversification, advice, review). Duty of care: the standard of the prudent person of business. Duty to act unanimously (unless the trust instrument allows majority decisions). Duty not to profit from the trust (Keech v Sandford: trustee who renews a lease for personal benefit holds it on constructive trust). Duty to keep accounts and provide information.
Breach of Trust and Tracing
Personal remedy against trustee: equitable compensation (profit and loss approach). Proprietary remedy: tracing — following trust property into assets. Common law tracing (limited: cannot follow into mixed funds). Equitable tracing: possible through mixed funds using the Re Hallett's Estate rule (trustee's money spent first) or Re Oatway (beneficiary can claim whichever asset purchased from mixed fund). Defences: consent of beneficiaries, laches, s.61 Trustee Act 1925 (honest and reasonable trustee).
Key cases
The cases most commonly tested in SQE1 MCQs for Trusts.
A trust requires the three certainties: intention, subject matter, and objects.
Discretionary trusts require the "is or is not" test for certainty of objects, not the complete list test.
A constructive trust requires the defendant to have knowledge of the factor making it unconscionable to assert their legal title.
A common intention constructive trust of land arises from an express agreement + detrimental reliance, or a direct contribution to the purchase price.
A trustee who renews a trust lease in their own name holds it on constructive trust for the beneficiaries.
Where a trustee mixes trust money with their own, they are treated as spending their own money first — the trust money is the balance.
Other FLK2 topics
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