SQE1 - Solicitors Qualifying Examination Part 1 The Law of Trusts Questions and Answers

Question 1

A testator's will contains the following clause: 'I give £200,000 to my trustees to distribute in their absolute discretion amongst my old friends'. Which of the three certainties required to form a valid express trust is most likely to fail in this disposition?

Accepted Answer

Certainty of objects, because the term 'old friends' is conceptually uncertain.

Answer

For a discretionary trust to be valid, the test for certainty of objects is the 'is or is not' test established in *McPhail v Doulton*. This requires that it can be said with certainty whether any given individual is or is not a member of the class of beneficiaries. The term 'old friends' is considered conceptually uncertain because it is a subjective term with no objective definition, making it impossible for trustees to determine who would fall into the class. The other options are incorrect: the subject matter (£200,000) is certain; the language used shows a clear intention to create a trust, not just a moral obligation; and the 'complete list' test applies to fixed trusts, not discretionary trusts.

Question 2

A settlor wishes to create a trust over 500 shares in a private company for her nephew. She completes and signs a share transfer form and gives it to her solicitor, telling the solicitor to 'deal with the transfer'. The solicitor places the form in a file but takes no further action. The settlor dies a month later. What is the most likely legal status of the shares?

Accepted Answer

An effective trust has been created under the rule in *Pennington v Waine* because it would be unconscionable for the gift to fail.

Answer

While the strict rule in *Milroy v Lord* holds that equity will not perfect an imperfect gift, exceptions have developed. The rule in *Re Rose* requires the transferor to have done everything in their power, which is not met here as the form was not delivered to the company. However, the principle from *Pennington v Waine* allows a court to find a trust is constituted where it would be unconscionable for the donor to resile from the gift. Here, the settlor's clear intention, instructing her agent (the solicitor), and the fact she did nothing to retract the gift before her death makes it arguably unconscionable for her personal representatives to deny the trust. Therefore, a constructive trust is likely to arise.

Question 3

A trustee is a chartered accountant managing a family trust. When exercising the general power of investment, what is the standard of care the trustee must exercise according to the Trustee Act 2000?

Accepted Answer

Such care and skill as is reasonable in the circumstances, having regard to his professional knowledge as an accountant.

Answer

Section 1 of the Trustee Act 2000 sets out the statutory duty of care. It requires a trustee to exercise 'such care and skill as is reasonable in the circumstances'. Crucially, it has both an objective and a subjective element. Regard must be had to (a) any special knowledge or experience the trustee has or holds themselves out as having, and (b) if acting in the course of a business or profession, any special knowledge or experience it is reasonable to expect of a person in that profession. As a chartered accountant, the trustee will be held to a higher standard reflecting that professional status.

Question 4

A mother provides the full £300,000 purchase price for a house, but for administrative convenience, the legal title is registered in the sole name of her adult son. There is no mention of a loan or gift. A decade later, the mother and son fall out, and the son claims the house is his absolutely. In the absence of any other evidence, what type of trust is most likely to have arisen?

Accepted Answer

A presumed resulting trust, with the son holding the property on trust for his mother.

Answer

Where a person provides the purchase money for a property which is then placed in the name of another, equity presumes that the person holding the legal title holds it on a resulting trust for the person who provided the funds (*Dyer v Dyer*). This presumption can be rebutted by evidence of a gift or loan, or by the presumption of advancement (e.g., from father to child), but the presumption of advancement is weaker from mother to child and can be rebutted by evidence showing an intention to retain an interest. Given the facts, a presumed resulting trust is the most likely outcome.

Question 5

A trustee, in breach of trust, makes an unauthorised and speculative investment of £50,000 from the trust fund. The investment subsequently fails, and the entire £50,000 is lost. The beneficiaries discover the breach. Which remedy are the beneficiaries most likely to seek against the trustee personally?

Accepted Answer

Equitable compensation to restore the trust fund to the position it would have been in but-for the breach.

Answer

The primary personal remedy against a trustee for a breach of trust that causes a loss is equitable compensation. The aim is to restore the trust fund to the position it would have been in had the breach not occurred. In this case, the trustee must personally pay £50,000 back into the trust fund to make good the loss. An account of profits is used when the trustee makes an unauthorised gain. Tracing is a process to identify assets, not a remedy against the trustee personally. Rescission would be a remedy against the third-party investment company, not the trustee.

SQE1 Practice Test

SQE1 Practice Test

SQE1 - Solicitors Qualifying Examination Part 1 The Law of Trusts Questions and Answers