SQE1 · Subject page 12 · 7 min read

SQE1 FLK2 subject notes: creating express trusts, beneficial entitlement, charitable and purpose trusts, resulting trusts, the family home, fiduciary duties, trustees' powers and liability, strangers to the trust and tracing.

What this subject covers

The SRA specification covers: the three certainties and the formalities and constitution of express trusts; fixed, discretionary, vested and contingent interests and the rule in Saunders v Vautier; charitable and non-charitable purpose trusts; resulting trusts; trusts of the family home and proprietary estoppel; liability of strangers (recipients and accessories); fiduciary duties; trustees' appointment, duty of care, investment, maintenance and advancement; breach of trust, protection of trustees and limitation; and equitable remedies and tracing.

Key principles

Creating an express trust

• The three certainties (Knight v Knight):
• Intention: words must impose a binding obligation; precatory words ("in full confidence that") usually do not (Re Adams and Kensington Vestry).
• Subject matter: the property and the shares must be clear; "the bulk" of an estate is too vague (Palmer v Simmonds).
• Objects: a fixed trust needs a complete list of beneficiaries (IRC v Broadway Cottages); a discretionary trust needs only that it can be said of any person whether he is or is not in the class (McPhail v Doulton).
• Formalities: a declaration of trust of land must be evidenced in signed writing (Law of Property Act 1925, s 53(1)(b)); a disposition of an existing equitable interest must be in signed writing (s 53(1)(c), Grey v IRC). Trusts created by will must satisfy the Wills Act 1837.
• Constitution: a trust by transfer to trustees is complete only when the property is vested in them (Milroy v Lord). Equity will not assist a volunteer, except where the donor has done all in his power (Re Rose), where the donee becomes the donor's executor (Strong v Bird), in a gift made in contemplation of death (donatio mortis causa), or by proprietary estoppel.

Beneficial interests

• An interest may be vested or contingent (for example on reaching 25), fixed or discretionary.
• Under Saunders v Vautier, adult beneficiaries of full capacity who together are absolutely entitled may end the trust and call for the property.

Secret trusts

A fully secret trust must be communicated to and accepted by the legatee before the testator's death. A half-secret trust (the will shows a trust but not its terms) must be communicated before or at the time of the will (Blackwell v Blackwell; Re Keen); if it fails, the legatee holds on resulting trust for the estate.

Charitable and purpose trusts

• A charitable trust needs a charitable purpose listed in section 3 of the Charities Act 2011 and public benefit (s 4), which is not presumed. A class defined by a personal nexus, such as employees of one company, fails the public element (Oppenheim v Tobacco Securities Trust), except in poverty cases.
• A non-charitable trust for an abstract purpose is generally void for want of a beneficiary, but a trust that directly benefits ascertainable people within the perpetuity period is valid (Re Denley's Trust Deed).

Resulting trusts

• Automatic: where an express trust fails or does not dispose of the whole beneficial interest, it results to the settlor (Vandervell).
• Presumed: on a purchase in another's name, or a voluntary transfer of personal property, the contributor is presumed to keep the beneficial interest, unless rebutted by evidence of a gift (or, where it still applies, the presumption of advancement). For a voluntary conveyance of land, section 60(3) of the Law of Property Act 1925 means no resulting trust is implied merely because the conveyance does not say it is for the grantee's benefit.

The family home

• Joint names: the starting point is equal beneficial shares, displaced only by a different common intention shown from the whole course of dealing (Stack v Dowden; Jones v Kernott).
• Sole name: the non-owner must show a common intention to share, by express agreement or inferred from conduct such as a direct contribution to the price (Lloyds Bank v Rosset; Abbott v Abbott), and detrimental reliance; the share is then fixed on the whole course of dealing.
• Proprietary estoppel: an assurance, reasonable reliance and detriment that make it unconscionable to go back on the assurance (Thorner v Major). The court decides the remedy.

Fiduciary duties

• No profit: a fiduciary must account for any profit made from his position without informed consent, even if honest and even if the trust also gains (Boardman v Phipps; Keech v Sandford). The court may allow payment for work and skill.
• No conflict / self-dealing: a trustee's purchase of trust property is voidable by any beneficiary however fair the price, unless authorised.

Trustees

• Appointment: by the person named in the trust instrument, or else by the surviving or continuing trustees, in writing (Trustee Act 1925, s 36); the court may appoint under s 41. No more than four trustees of land.
• Duty of care: reasonable care and skill, judged by any special knowledge, and higher for professionals (Trustee Act 2000, s 1).
• Investment: a general power of investment (s 3), exercised with regard to the standard investment criteria (suitability and diversification) and after proper advice (ss 4 and 5).
• Maintenance (Trustee Act 1925, s 31): income may be used for a minor beneficiary's maintenance; from 18 a beneficiary with a contingent interest in a gift carrying the intermediate income is entitled to the income.
• Advancement (s 32): capital may be paid for a beneficiary's benefit, up to the whole of the presumptive share for trusts created after 1 October 2014 (one half for earlier trusts), with the written consent of anyone with a prior interest.

Breach of trust and protection

• Trustees are liable to restore the loss caused by the breach; liability is joint and several.
• Protection: an exemption clause may exclude liability for negligence, even gross negligence, but not dishonesty (Armitage v Nurse); the court may relieve a trustee who acted honestly and reasonably and ought fairly to be excused (s 61); it may impound the interest of a beneficiary who instigated or consented in writing to the breach (s 62).
• Limitation: generally six years from the breach (Limitation Act 1980, s 21(3)); none for fraudulent breach or to recover trust property from the trustee (s 21(1)).

Strangers to the trust

• Dishonest assistance: a person who dishonestly assists a breach of trust is liable, whether or not the trustee was dishonest (Royal Brunei Airlines v Tan); dishonesty is objective, applied to what he knew (Ivey v Genting Casinos).
• Knowing receipt: a person who receives trust property for his own benefit is liable if his knowledge makes it unconscionable to keep it (BCCI v Akindele).

Tracing

• In a mixed account a trustee is presumed to spend his own money first (Re Hallett), but the beneficiaries may claim an asset bought from the account where the balance is later spent (Re Oatway).
• The claim is limited to the lowest intermediate balance; later deposits of the trustee's own money are not treated as replacing trust money (Roscoe v Winder).
• Beneficiaries may claim the traced asset, including any increase in value, or a charge over it (Foskett v McKeown).

Worked example

Tom holds 20,000 pounds on trust for his niece Ula absolutely. He pays it into his own account, which holds 5,000 pounds of his own, buys shares for 10,000 pounds from the account, and spends the rest on a car that is later written off. The shares are now worth 30,000 pounds.

1. Tom has mixed trust money with his own. Under Re Oatway, Ula may claim the shares, as the rest of the account was dissipated; Tom cannot say the shares were bought with his own money.
2. Following Foskett v McKeown, she may take the shares, including the increase in their value.
3. For the 10,000 pounds of trust money that was lost, Ula has a personal claim against Tom for breach of trust. No limitation period applies, because Tom took the money for himself.

Scope follows the SRA's SQE1 Functioning Legal Knowledge Assessment Specification (FLK2, Trusts). The notes are our own summary, not SRA material. Law of England and Wales as at 1 September 2026 (the SRA assesses the law as it stands four calendar months before the first assessment in a window).