SQE1 Trusts: Complete Guide

Most SQE1 candidates lose marks on Trusts because they fail to apply the three certainties systematically, instead relying on general impressions about whether a trust "sounds valid." Master Knight v Knight and half your questions resolve at the first test.

Explore This Topic

Creation and Constitution of Trusts
Types of Trusts
Trustee Duties and Powers
Breach of Trust and Remedies
Charitable and Purpose Trusts
Appointment and Removal of Trustees
Beneficiaries' Rights
Liability of Strangers to the Trust
Family Home Trusts and Proprietary Estoppel

What Is Trust Law?

Trusts law governs the creation, management, and enforcement of trusts — equitable obligations that require a trustee to hold property for the benefit of beneficiaries. SQE1 tests your ability to identify whether a trust is validly created, determine the duties of trustees, identify breaches and their remedies, and apply these principles to realistic client scenarios.

The law of trusts is foundational to English equity and permeates modern property law. You will encounter trusts in context of wills and succession (testamentary trusts), family home disputes (constructive trusts), and administration of estates. The core principles are the same: valid creation requires the three certainties; trustees must perform their duties; breaches have equitable remedies.

The creation and constitution of trusts and breach of trust are among the most heavily tested areas in SQE1 Trusts.

Core Areas Tested in SQE1

The core areas for this topic are covered in the subtopic guides listed in Explore This Topic above.

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.
Constitution and Transfer: A trust is constituted when legal title passes to the trustee, either by transfer or by the settlor's declaration of themselves as trustee. If the three certainties are satisfied but the trust is not constituted, no enforceable trust exists. This is the distinction between creating a trust (satisfying the three certainties) and constituting a trust (ensuring legal title is transferred).
Express, Resulting, and Constructive Trusts: Express trusts are created intentionally by the settlor. Resulting trusts arise by operation of law when beneficial interest reverts to the settlor. Constructive trusts are imposed by equity when the circumstances make it unconscionable for a person to retain legal title.
Trustee Duties: Trustees must know the trust terms, act honestly and impartially, invest prudently with the duty of care from the Trustee Act 2000, maintain accounts, and exercise discretion (in discretionary trusts) honestly and in good faith. Breach of trust is a serious matter with equitable remedies for loss.
Beneficiary Rights: Beneficiaries have the absolute right to know of the trust's existence, the right to information (subject to limited exceptions), the right to accounts, and the right to receive distributions according to the trust terms. In some cases, beneficiaries can terminate the trust (under Saunders v Vautier where beneficial interest is wholly vested in a single adult) or vary the trust terms (where all beneficiaries agree).
Breach of Trust and Remedies: Breach occurs when trustees fail to perform duties or exercise powers improperly. Remedies include personal claims for equitable compensation, account of profits, and proprietary remedies such as tracing and constructive trusts on third parties. Defences include beneficiary consent and limitation periods.
Strangers to the Trust: Third parties who receive trust property improperly (knowing receipt) or who assist a breach (dishonest assistance) can be held liable. The tests are different: knowing receipt focuses on the recipient's knowledge; dishonest assistance focuses on the assister's dishonesty by ordinary standards.
Charitable Trusts: Charitable trusts fall within the 13 heads of the Charities Act 2011 and satisfy the public benefit test. They enjoy significant legal advantages (perpetuity, tax relief, Charity Commission oversight) compared to non-charitable trusts.
Family Home Trusts and Proprietary Estoppel: Constructive trusts in family homes require common intention (express or inferred) and detrimental reliance. Proprietary estoppel protects reliance on encouragement by the legal owner. These are distinct doctrines with different requirements and remedies.

Exam tip

Trusts questions test whether the three certainties are satisfied — if any fails, no trust is created. Apply Knight v Knight systematically: is there certainty of intention (the settlor intended to create a trust, not a moral obligation)? Certainty of subject matter (the trust property and beneficial interests are clearly defined)? Certainty of objects (the beneficiaries are ascertainable)? For trustees, remember the core duties: know the trust terms, act honestly and impartially, invest prudently. For breach of trust, identify the loss and determine the remedy: personal claims for damages against the trustee, or proprietary remedies (tracing, constructive trusts) if applicable. These foundational tests resolve most exam questions.

How This Appears in SQE1 Questions

This is a classic SQE1 trap.

Trusts questions on SQE1 are scenario-based multiple-choice questions with five answer options (A–E). You will be presented with a factual scenario involving trust creation, trustee duties, beneficiary rights, or breach of trust, and asked to identify the correct legal position. The exam tests application of the foundational principles to realistic circumstances.

A typical scenario:

Creation and Constitution: "A decides to create a trust. A writes: 'I declare that I hold my shareholding in Beta Ltd on trust for B and C in equal shares.' A does not tell B or C. Has a valid trust arisen?" (Tests three certainties and constitution.)
Trustee Duties: "T is trustee. The trust deed gives T discretion to invest. T invests 80% in speculative stocks. The trust loses 50% of its value. Has T breached the duty of care?" (Tests investment duties and the standard of care.)
Beneficiary Rights: "B, a fixed beneficiary, demands to see all trust documents. The trustees refuse. Does B have the right to inspect?" (Tests the scope of beneficiaries' information rights.)
Breach and Remedies: "T, a trustee, misappropriated £50,000. T has been removed. What remedy do the beneficiaries have?" (Tests remedies for breach.)
Family Homes: "H and W purchased a house. H paid the purchase price and legal title is in H's name. W contributed to mortgage payments and renovated the property. W claims a beneficial interest. Does W have a constructive trust interest?" (Tests common intention and detrimental reliance.)

Common Mistakes Students Make

Failing to identify and apply the three certainties systematically
Confusing the duties of trustees with the rights of beneficiaries
Overlooking the difference between breach of trust remedies and personal claims
Misidentifying the requirements for trust constitution
Ignoring the distinction between express, resulting and constructive trusts
Treating knowing receipt and dishonest assistance as the same concept
Assuming financial contributions establish constructive trust interests without common intention
Confusing proprietary estoppel with common intention constructive trusts

Quick Summary

Three certainties (Knight v Knight): Certainty of intention (settlor intended to create a trust), certainty of subject matter (the beneficial interests and trust property are clearly defined) and certainty of objects (the beneficiaries are ascertainable).
Constitution: A trust is constituted when legal title passes to the trustee; this can be done by transfer or, in some cases, by declaration.
Trustee duties: Trustees must know the terms of the trust, act honestly and in the best interests of beneficiaries, act impartially between beneficiaries, and invest prudently.
Beneficiary rights: Beneficiaries have the right to be told of the trust's existence, to have their interests protected, to inspect trust documents (with exceptions) and to receive trust distributions.
Breach of trust and remedies: Breach occurs when trustees fail to perform their duties; remedies include personal claims against trustees for loss and proprietary remedies such as tracing and claims against recipients.
Express, resulting, and constructive trusts: Express trusts are created intentionally; resulting trusts arise by operation of law when beneficial interest reverts to the settlor; constructive trusts are imposed in unconscionable circumstances.
Strangers to the trust: Recipients of trust property improperly may be liable as constructive trustees (knowing receipt); those who assist breaches may be liable for dishonest assistance.
Charitable trusts: These fall within the Charities Act 2011 and satisfy public benefit; they enjoy perpetuity and tax advantages.
Family homes and estoppel: Common intention constructive trusts require common intention and detriment; proprietary estoppel protects reliance on encouragement by the legal owner.

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 trust was established by will for the benefit of the testator's two adult children in equal shares. The sole trustee is a retired solicitor who agreed to act without remuneration. The trust fund consists of a portfolio of listed equities valued at a significant sum. The trust instrument is silent on the trustee's investment powers. The trustee decides to invest the entire trust fund in shares of a single technology company after reading a favourable article in a financial newspaper. He does not take professional financial advice before making the investment. The trustee has no personal expertise in technology investments. The trust instrument does not exclude or restrict the statutory duty of care. Within six months, the technology company issues a profit warning and its share price falls by sixty per cent. The beneficiaries discover the investment and demand that the trustee compensate the trust for the loss. The trustee argues that he acted honestly and in what he believed to be the best interests of the beneficiaries. He also argues that the financial newspaper article constituted sufficient research. One of the beneficiaries is a professional fund manager who had previously offered to advise the trustee on investments but was declined. The trustee has been managing the trust for seven years without any prior complaint from the beneficiaries. The trustee has personal savings but they are modest compared to the loss suffered by the trust.

Which of the following best describes the trustee's liability for the investment loss?

Question 2

Scenario

A testamentary trust established under a will provides that the trust fund is to be held for the testator's granddaughter contingent upon her attaining the age of twenty-five. The granddaughter is currently nineteen years old and has been offered a place at a prestigious art school in another country. The tuition fees are substantial. The trustees wish to pay the tuition fees from the trust fund. The trust fund is valued at a significant sum, invested in a diversified portfolio. The trust instrument does not modify or exclude the statutory powers of maintenance and advancement. The granddaughter's mother, who is the life tenant under a separate provision of the same will, consents in writing to the proposed payment. The granddaughter has no other means of funding the tuition fees and has been working part-time to support herself. One of the trustees is a retired art dealer who has personal knowledge of the art school and considers it an excellent institution. The other trustee is a solicitor who has no connection to the art world. The granddaughter's father, who is not a beneficiary under the trust, objects to the proposed payment on the basis that the granddaughter should complete a law degree instead. The trustees are uncertain whether they have the power to make the payment before the granddaughter reaches twenty-five. The trust was created after 1 October 2014.

Which of the following best describes the trustees' power to pay the tuition fees from the trust fund?

Question 3

Scenario

A family trust was established by deed twenty years ago for the benefit of the settlor's three children. The trust originally had three trustees: the settlor's brother, his solicitor, and a family friend. The settlor's brother died five years ago. The solicitor retired from practice and wishes to retire as trustee. The family friend remains willing to act but is now the sole remaining trustee. The trust instrument contains no power of appointment of new trustees. The settlor died ten years ago and made no provision in his will regarding replacement trustees. The beneficiaries are all adults and have been receiving income from the trust. Two of the beneficiaries are in agreement about who should be appointed as a new trustee, but the third disagrees. The trust fund includes both land and investments. The family friend has been managing the trust competently. The family friend's health has been declining, but she has not expressed any wish to retire. The solicitor writes to the family friend confirming his intention to retire as trustee. He has identified a suitable replacement but wants to know who has the power to appoint. The beneficiaries are concerned about the trust having only one active trustee, particularly given the trust holds land. A local accountant has expressed willingness to act as trustee if appointed.

Which of the following correctly identifies who has the power to appoint a new trustee in place of the retiring solicitor?

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