SQE1 · FLK2
Trusts
Express, resulting, constructive trusts; trustees' duties.
Three certainties, formalities, beneficial interests, trustees' duties, breach of trust and remedies.
Trusts in SQE1 FLK2
Trusts is an equity-heavy FLK2 subject built on the creation of valid trusts and the duties of trustees. The marks reward precise application of the three certainties and the formality and constitution rules, then the trustees' duties and the remedies for breach.
What’s tested
- The three certainties (Knight v Knight): certainty of intention, subject matter and objects
- Formalities for declaring a trust and the rules on constitution (a trust must be completely constituted)
- The beneficiary principle and the rules against purpose trusts
- Resulting trusts (automatic and presumed) and constructive trusts
- Trustees' duties: the duty of care, the duty to act impartially and the duty to invest
- Fiduciary duties: the no-conflict and no-profit rules
- Breach of trust, the personal liability of trustees and the available remedies
- Tracing trust property at common law and in equity
Leading cases to know
- Knight v Knight — the three certainties required for an express trust
- Milroy v Lord — the rule that equity will not perfect an imperfect gift / constitution
- Keech v Sandford — the strictness of the no-conflict fiduciary rule
Key statutes and rules
- Trustee Act 2000 — the statutory duty of care and the power of investment
- Law of Property Act 1925, s.53 — formalities for declarations and dispositions
- Trusts of Land and Appointment of Trustees Act 1996 — trusts of land and trustees' powers
Common SBAQ traps
- Treating an imperfect gift as a valid trust — equity will not perfect it (Milroy v Lord)
- Confusing certainty of objects tests for fixed trusts (complete list) with discretionary trusts (the 'is or is not' test)
- Overlooking that the no-profit rule is strict, so even a good-faith profit can be a breach
How to revise Trusts for FLK2
Start every problem with the validity gate — intention, subject matter, objects, formalities, constitution — before moving to administration and breach. Learn the certainty-of-objects tests for fixed versus discretionary trusts precisely, as this is a recurring SBAQ trap.
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Free revision notes — Trusts
Trusts in FLK2 covers the creation and administration of trusts: the three certainties, constitution, formalities, resulting and constructive trusts, trustees' duties, breach of trust, and remedies. The law of trusts interconnects closely with land law, wills, and Solicitors Accounts.
Creation of express trusts
Three certainties (Knight v Knight [1840]): (1) certainty of intention — settlor must have intended to impose a binding obligation, not merely a moral one (Lambe v Eades [1871] — 'I give my property in full confidence' is precatory language and insufficient); (2) certainty of subject matter — the trust property must be ascertained or ascertainable (Palmer v Simmonds [1854] — 'bulk of my residuary estate' is insufficient); (3) certainty of objects — beneficiaries must be ascertainable; for fixed trusts, complete list test (IRC v Broadway Cottages [1955]); for discretionary trusts, is or is not test (McPhail v Doulton [1971]). Constitution: the trust is completely constituted when the trust property has been vested in the trustees by proper transfer — equity will not assist a volunteer (Milroy v Lord [1862]).
Formalities
Declarations of trust of land must be in writing signed by the settlor (LPA 1925 s.53(1)(b)). Dispositions of existing equitable interests must be in writing (s.53(1)(c) — Grey v IRC [1960]). S.53(2) exempts resulting and constructive trusts from these requirements. A transfer of shares by a transferor must comply with the company's articles (Milroy v Lord — Rule in Strong v Bird [1874]: if the deceased had made an imperfect gift of an asset to someone who later becomes the deceased's executor, the gift is perfected when the executor takes the legal estate).
Resulting and constructive trusts
Automatic resulting trust: where an express trust fails wholly or in part, or where there is a voluntary transfer of property. Presumed resulting trust: where A pays the purchase price and B takes the legal title, a resulting trust arises in A's favour — but rebutted by presumption of advancement (father to child, husband to wife — though see Stack v Dowden for modern treatment). Common intention constructive trust: Stack v Dowden [2007] and Jones v Kernott [2011] apply in the domestic context — courts infer or impute a common intention to share the beneficial interest from financial contributions and other conduct. Proprietary estoppel (Thorner v Major [2009]): assurance, reliance, detriment — remedy is proportionate to the equity.
Trustees' duties and breach of trust
Trustees must act unanimously (unless the trust instrument permits otherwise). Investment duties: Trustee Act 2000 — the standard investment criteria (suitability, diversification), duty to obtain and consider proper advice. Duty of care: Trustee Act 2000 s.1 — reasonable care and skill, with a higher standard for professional trustees. Conflict of interest: trustees may not profit from the trust (self-dealing rule — Re Thompson [1930]; fair-dealing rule — less strict). Breach of trust: a trustee who breaches their duty is personally liable to restore the trust fund. Contribution and indemnity between trustees. Defences: consent of a beneficiary who is of full age and absolute beneficial owner (Saunders v Vautier); s.61 Trustee Act 1925 (court may relieve if trustee acted honestly and reasonably); exclusion clauses in the trust instrument (but not for fraud or wilful default — Armitage v Nurse [1998]).
Common pitfalls
- Confusing precatory language (mere moral obligation, no trust) with imperative language (binding obligation, trust created) — the distinction is intent-based, not formulaic.
- Forgetting that s.53(1)(c) requires writing for all dispositions of subsisting equitable interests — even oral instructions to trustees to hold on new trusts are caught.
- Misapplying the three certainties to discretionary trusts: the 'is or is not' test for objects applies to discretionary trusts; the complete list test applies to fixed trusts.
- Overlooking s.61 Trustee Act 1925 as a defence — it is commonly available where a trustee made an honest and reasonable mistake.
Exam tip
For trust creation questions, run through the three certainties and then constitution. For trust administration and breach questions, identify the specific duty breached, the loss caused, and the available defences.
Bank size: 73 questions. We grow the bank weekly.
Trusts — frequently asked questions
What's tested in SQE1 Trusts?
Trusts (FLK2) covers the creation of express trusts (the three certainties of intention, subject matter and objects, plus the relevant formalities and constitution), resulting and constructive trusts, the duties and powers of trustees and the duty of investment, breach of trust and the remedies against trustees and third parties, and tracing.
Is SQE1 Trusts multiple choice?
Yes. Like the rest of SQE1, Trusts is assessed through single-best-answer questions: a client-based scenario followed by five options (A–E) from which you pick the single best answer. There is no negative marking, so it is always worth attempting every question.