SQE1 Equity & Trusts 3

Question 1

Under section 1 of the Trustee Act 2000, what is the standard of care required of a trustee when exercising statutory functions such as investment?

Accepted Answer

Such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience

Answer

An absolute duty to maximise financial returns for beneficiaries

Answer

The standard of the most cautious, prudent investor at all times

Answer

The standard of the ordinary professional investor regardless of the trustee's background

Question 2

In Milroy v Lord (1862), Turner LJ established a foundational principle of equity. Which statement correctly summarises it?

Accepted Answer

Equity will not perfect an imperfect gift; to be complete a donor must do everything necessary to effect the transfer

Answer

A trust can be created without any formality provided the intention is clear

Answer

An imperfect gift becomes valid once the donee acts in reliance on the promise

Answer

Courts will enforce gratuitous promises where they are supported by consideration

Question 3

Where a trustee commits a breach of trust that causes loss to the trust fund, what is the primary remedy available to the beneficiaries?

Accepted Answer

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

Answer

An account of profits to strip the trustee of any gain

Answer

An injunction to restrain any future breach

Answer

A declaration that the trustee holds the assets on bare trust

Question 4

The rule in Saunders v Vautier allows beneficiaries to collapse a trust and demand the trust property. What conditions must be met?

Accepted Answer

All beneficiaries must be adults of full capacity and together hold the entire beneficial interest

Answer

A majority of beneficiaries vote to terminate the trust

Answer

The settlor must consent to the termination

Answer

The trustees must agree that termination is in the best interests of the beneficiaries

Question 5

Which of the following constitutes a breach of the self-dealing rule applicable to trustees?

Accepted Answer

A trustee purchasing trust property from the trust estate for their own benefit

Answer

A trustee delegating investment management to a professional fund manager

Answer

A trustee investing in government gilts without prior court approval

Answer

A trustee distributing income to life tenants before capital to remaindermen

Question 6

Under the rule in Re Hallett's Estate (1880), where a trustee mixes trust money with their own funds in a bank account and subsequently makes withdrawals, how are those withdrawals treated?

Accepted Answer

As drawn from the trustee's own money first, leaving the trust money intact

Answer

As drawn equally from trust and personal funds in proportion to each

Answer

As drawn from the trust money first, maximising the personal fund

Answer

At the court's discretion based on the trustee's stated intention

Question 7

Under the Variation of Trusts Act 1958, on whose behalf may the court give consent to a variation of trust beneficial interests?

Accepted Answer

Minors, unborn beneficiaries, and persons lacking mental capacity

Answer

Adult beneficiaries who have full legal capacity

Answer

The settlor, provided they are still alive and solvent

Answer

Any beneficiary who objects to the proposed variation