CILEx L6 Equity and Trusts — Questions and Answers
Question 1: Which of the following correctly states the three certainties required to create a valid express trust, as established in Knight v Knight (1840)?
- Certainty of intention, certainty of subject matter, and certainty of objects (Correct answer)
- Certainty of form, certainty of consideration, and certainty of purpose
- Certainty of writing, certainty of beneficiaries, and certainty of duration
- Certainty of capacity, certainty of formality, and certainty of registration
Correct answer: Certainty of intention, certainty of subject matter, and certainty of objects
Knight v Knight established that three certainties must be present for a valid express trust: (1) certainty of intention — the settlor must intend to create a trust; (2) certainty of subject matter — the trust property must be identifiable; (3) certainty of objects — the beneficiaries must be ascertainable.
Question 2: In relation to secret trusts, what is the key distinction between a fully secret trust and a half-secret trust regarding communication?
- A fully secret trust requires communication before the will is executed; a half-secret trust does not
- For a fully secret trust, communication may occur at any time up to the testator's death; for a half-secret trust, communication must occur before or at the time of execution of the will (Correct answer)
- There is no difference in communication requirements
- Both types require communication to be made in the will itself
Correct answer: For a fully secret trust, communication may occur at any time up to the testator's death; for a half-secret trust, communication must occur before or at the time of execution of the will
For fully secret trusts, the trust obligation can be communicated at any time before the testator's death (Wallgrave v Tebbs). For half-secret trusts, where the will reveals a trust exists but not its terms, communication must occur before or at the time the will is executed (Blackwell v Blackwell [1929]), not after.
Question 3: A trustee uses trust funds to purchase a property in their own name. The property doubles in value. Which equitable remedy is available to the beneficiaries?
- The beneficiaries may only claim the original amount misapplied
- The beneficiaries may elect to either claim the property itself (through a constructive trust) or trace the trust money into the property and claim its increased value (Correct answer)
- The beneficiaries can only claim damages for breach of trust equal to the original sum
- The beneficiaries must accept the property and cannot claim the monetary difference
Correct answer: The beneficiaries may elect to either claim the property itself (through a constructive trust) or trace the trust money into the property and claim its increased value
Where a trustee misapplies trust funds to acquire property, the beneficiaries have an election: they can assert a constructive trust over the property (Keech v Sandford principle) or trace the trust money into the asset and claim its full value. This ensures the trustee cannot profit from their breach of fiduciary duty.
Question 4: Under the law of resulting trusts, in which circumstance does a presumption of resulting trust arise?
- When a trustee acts in breach of their fiduciary duties
- When property is purchased in the name of another person and there is no evidence of a gift or loan (Correct answer)
- When a beneficiary under a will predeceases the testator
- When a charity ceases to exist
Correct answer: When property is purchased in the name of another person and there is no evidence of a gift or loan
A purchase money resulting trust arises where A pays for property but it is put in the name of B. The presumption is that B holds on resulting trust for A, unless the presumption of advancement applies (e.g., transfers from parent to child) or there is evidence of a gift (Dyer v Dyer). The Equality Act 2010 s.199 was enacted to abolish the presumption of advancement but has not been brought into force.
Question 5: What are the fiduciary duties owed by a trustee that prohibit them from making an unauthorised profit from the trust?
- The duty of care and the duty to act impartially
- The self-dealing rule and the fair-dealing rule (Correct answer)
- The duty to invest prudently and the duty to distribute income
- The duty to keep accounts and the duty to provide information
Correct answer: The self-dealing rule and the fair-dealing rule
The self-dealing rule (a trustee must not purchase trust property) and the fair-dealing rule (a trustee purchasing a beneficiary's interest must show the transaction was fair) are the core no-profit/no-conflict rules. These derive from the strict fiduciary principles in Keech v Sandford and Bray v Ford, preventing trustees from placing themselves in positions where duty and interest conflict.
Question 6: In the context of charitable trusts, which of the following is NOT a requirement for a trust to qualify as charitable under the Charities Act 2011?
- The trust must fall within one of the descriptions of charitable purposes in s.3
- The trust must be for the public benefit
- The trust must have identifiable individual beneficiaries (Correct answer)
- The trust must be exclusively charitable
Correct answer: The trust must have identifiable individual beneficiaries
Unlike private trusts, charitable trusts do not require identifiable individual beneficiaries. Instead, they must satisfy: (1) a purpose falling within s.3 Charities Act 2011 (which lists 13 descriptions of charitable purposes); (2) the public benefit requirement (s.4); and (3) exclusivity — the purposes must be exclusively charitable. The lack of an ascertainable beneficiary requirement is a key distinction from private trusts.
CILEx L6 Equity and Trusts
Which of the following correctly states the three certainties required to create a valid express trust, as established in Knight v Knight (1840)?