← Back to blog

Creation and Constitution of Trusts for SQE1

Part of our SQE1 Trusts guide → View the full SQE1 Trusts guide

04 Apr 2026

Creating a valid trust requires more than good intentions. SQE1 tests whether you can identify the essential requirements for a trust to come into existence ...

Creation and Constitution of Trusts

Trusts > Creation and Constitution of Trusts

Candidates often lose marks on trust creation because they treat the three certainties as a checklist rather than a rigorous framework, leading them to miss failures in certainty of subject matter or objects. This is a classic SQE1 trap.

What Is Creation and Constitution of Trusts in SQE1?

Creating a valid trust involves two distinct stages. First, the trust must be created — this requires the three certainties established in Knight v Knight: certainty of intention, certainty of subject matter, and certainty of objects. Second, the trust must be constituted — legal title to the trust property must be transferred to the trustee so they can hold it for the beneficiaries.

The distinction between these stages matters because a settlor can create a trust in someone else's favour, but the trust will fail if it is never properly constituted. The Law of Property Act 1925 s.53(1)(b) and (c) add complexity by requiring evidence in writing for certain types of trust. Understanding the foundational principles of trusts law and the requirements of appointment and removal of trustees will help you answer this question systematically.

Key Principles for SQE1

  • The Three Certainties (Knight v Knight): All three must be satisfied for a valid trust. Certainty of intention requires the settlor to intend to create a trust, not merely a moral obligation or wish. Certainty of subject matter requires clarity about what property forms the trust and who the beneficiaries are. Certainty of objects requires the beneficiaries to be ascertainable, either fixed (traditional certainty of objects) or within discretionary criteria (conceptual certainty). Failure of any one certainty defeats the trust.

  • Certainty of Intention: The settlor must demonstrate a present, binding intention to create a trust. This is assessed objectively by looking at words and conduct. A statement of moral obligation (e.g., "I wish you to look after my nephew") is insufficient. The language must indicate mandatory effect, not discretion or precatory intent.

  • Certainty of Subject Matter: This has two limbs. First, the trust property must be clearly identified (property certainty). Second, each beneficiary's beneficial interest must be clearly defined (interest certainty). In discretionary trusts, interest certainty is satisfied if the trustees are given objective criteria to apply; it fails if the language is purely subjective.

  • Certainty of Objects: For fixed trusts, the beneficiaries must be ascertainable with certainty from the trust language. For discretionary trusts, the test is whether the trustees can determine with certainty whether any given person is or is not within the class of beneficiaries. Vague language, such as "my grandchildren who I think are deserving," will fail this test.

  • Constitution by Transfer: A trust is constituted when legal title passes to the trustee. If the settlor is not the legal owner or does not have authority to transfer title, the trust fails at the constitution stage, even if the three certainties are satisfied (as established in Milroy v Lord).

  • Declaration of Self as Trustee: Alternatively, the settler can declare themselves trustee, thereby constituting the trust at the moment of declaration. No transfer is required. This is a valid method of constitution where the settler has legal title.

Exam tip

Common mistake: Candidates see a trust that satisfies the three certainties and conclude it is valid, overlooking whether it has been constituted. In Milroy v Lord, the three certainties were arguably satisfied, but the trust failed because title had not been transferred to the trustee. Ask: has legal title passed to the trustee, either by transfer or by the settler's declaration of themselves as trustee?

How This Appears in SQE1 Questions

A typical scenario involves a settler attempting to create a trust by declaring an intention, but failing to transfer legal title. For example: "A tells his nephew B, 'I intend you to hold my shareholding in Acme Ltd on trust for my daughter.' A does not register B's name with the company. Three years later, A dies. B claims he is the trustee; the company claims A's estate holds the shares." The question tests whether you recognize that the trust has not been constituted because B never received legal title.

This is a classic SQE1 trap.

Common Mistakes Students Make

  • Assuming a trust exists once the three certainties are satisfied, without checking whether it has been constituted
  • Confusing certainty of subject matter (the trust property must be identified) with interest certainty (each beneficiary's share must be defined)
  • Treating precatory language (e.g., "I hope you will..." or "I wish you to...") as creating a binding trust
  • Overlooking the requirement in s.53(1)(b) LPA 1925 that declarations of trust in land must be evidenced in writing
  • Misapplying the test for certainty of objects in discretionary trusts; the test is not whether the trustees can identify all members of the class, but whether they can determine whether any given person is in or out

Quick Summary

  • The three certainties (Knight v Knight) must all be satisfied: certainty of intention, certainty of subject matter, and certainty of objects.
  • A trust can fail at the creation stage (if any certainty fails) or at the constitution stage (if legal title is not transferred to the trustee).
  • Constitution by transfer requires legal title to pass to the trustee; constitution by declaration of self requires the settler to hold legal title and declare themselves trustee.
  • Section 53(1)(b) LPA 1925 requires declarations of trust in land to be evidenced in writing; breach does not prevent the trust arising in equity but makes it unenforceable against an executor or purchaser.
  • The distinction between fixed and discretionary trusts matters at the certainty of objects stage: fixed trusts require the beneficiaries to be identifiable as a complete class, while discretionary trusts require a conceptual test for membership.

Want to test this now? Try a few SQE1-style questions below before moving on.

Test Yourself

Test yourself

Quick check questions based on this article.

Question 1

Scenario

A property investor owns a buy-to-let flat registered in her sole name. During a conversation with her sister at a family gathering, she states: 'I want you to have the flat - I'm holding it for you from now on.' The sister thanks her and begins paying the council tax and utility bills for the flat. No written document is created to record the arrangement. Three years later, the property investor decides to sell the flat and denies that any trust exists in her sister's favour. The sister seeks legal advice on whether she has an enforceable beneficial interest in the flat. The flat has increased in value from £180,000 to £260,000 since the conversation took place. The sister's solicitor identifies two potential arguments: first, that an express trust was created by the oral declaration; and second, that a constructive trust may have arisen by virtue of the sister's detrimental reliance. The property investor's solicitor argues that no enforceable interest exists because there is no written evidence of any trust.

Which of the following best describes the legal position regarding the sister's claim to a beneficial interest in the flat?

Question 2

Scenario

A testator's will contains the following clause: 'I leave £200,000 to my executors to be applied for such charitable or benevolent purposes as they in their absolute discretion think fit.' The executors are a solicitor and the testator's long-standing friend. The testator had been a generous supporter of several registered charities during her lifetime. The testator discussed the clause with her solicitor before executing the will. The solicitor advised that the clause would allow the executors flexibility in distributing the funds. At the date of death, the testator's estate is valued at £850,000. The residuary estate passes to the testator's two adult children equally. The children challenge the validity of the clause, arguing that it does not create a valid charitable trust. The executors argue that the testator's charitable history demonstrates that the funds were intended for charitable purposes only. The testator had made regular donations to a local hospital, a children's literacy programme and an animal rescue centre. The solicitor who drafted the will has twenty years of experience in private client work. The testator's friend believes the money should go to the local hospital, which was the testator's favourite charity. The will was properly executed and there is no dispute about the testator's testamentary capacity.

Which of the following best describes the validity of the clause in the testator's will?

Question 3

Scenario

A businessman owns a commercial warehouse registered in his sole name. He tells his business partner over a dinner meeting that he wants her to hold a half share of the warehouse on trust for his daughter. The business partner agrees verbally and shakes his hand. The businessman's accountant, who is also present at the dinner, makes a note of the conversation in her personal diary. The following week, the businessman instructs his solicitor to prepare a formal deed of trust, but before the deed is completed, the businessman suffers a serious stroke and loses mental capacity. The business partner has been managing the warehouse since the dinner and has collected rental income from the commercial tenants. She has deposited the rental income into a separate bank account labelled 'warehouse trust account'. The warehouse has recently been valued at significantly more than its original purchase price. The businessman's wife, acting under a lasting power of attorney, discovers the arrangement and disputes whether any trust was created. The accountant's diary entry records the businessman's exact words and is dated and signed by the accountant. The business partner has not been registered as a legal owner of any part of the property. The businessman had previously made a will leaving the warehouse to his wife. The daughter is aged twenty-five and works as a teacher. She was not present at the dinner and was not informed of the arrangement. The business partner seeks legal advice on whether the trust is valid.

Which of the following best describes whether a valid trust of the half share in the warehouse has been created?

Practice with full exam-style questions

Try DemoView Pricing

Related Topics

Practise Creation and Constitution of Trusts Questions for SQE1

Want to solidify your knowledge? ActusPrep provides realistic SQE1 questions tailored to this topic.

👉 Try our free demo: https://actusprep.com/demo 👉 View plans and pricing: https://actusprep.com/pricing