Trusts MCQS

Question 1

True or False: A trustee can apply trust property exclusively for their own benefit.

A) False

B) True

Answer 1

A) False

(A trustee is under a duty to apply trust property for the benefit of the beneficiaries)

Question 2

A CREST member is the registered owner of 100,000 shares in BT Group plc. It holds 50,000 of those shares for a broker. The broker acquired its interest in the 50,000 shares on behalf of a private investor.

Which one of the following statements is a correct description of the private investor’s position in relation to the 50,000 shares?

A) The investor has a legal and equitable interest in the shares

B) The investor has an equitable interest in the shares but not the beneficial interest

C) The investor is the legal owner of the shares

D) The investor does not have any interest in the shares

E) The investor has an equitable and beneficial interest in the shares

Answer 2

E) The investor has an equitable and beneficial interest in the shares.

(The CREST member is the legal owner of the shares. The broker has an equitable interest in the shares but no beneficial interest. The investor has an equitable and beneficial interest in the shares)

Question 3

A trustee holds £50,000 on trust for a beneficiary. The trustee misapplies £10,000 of the trust money and gifts it to the local priest. The priest does not know that the £10,000 is trust money. The trustee misapplies another £10,000 of the trust money and purchases a car with the money. The seller knows that the money paid by the trustee is misapplied trust money. The trustee is made bankrupt.

Which one of the following statements is a correct description of the beneficiary’s rights?

A) The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee and in the £10,000 given to the priest, but not in the £10,000 paid to the purchaser

B) The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee but not in the £10,000 given to the priest or the £10,000 paid to the purchaser

C) The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, and in the £10,000 paid to the purchaser

D) The beneficiary does not have an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, or in the £10,000 paid to the seller.

E) The equitable proprietary interest which the beneficiary has in any assets held by the trustee will be subordinated to the claims of the trustee’s creditors

Answer 3

C) The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, and in the £10,000 paid to the purchaser

(The beneficiary of a trust has an equitable proprietary interest in the trust property which can be enforced against everyone except a purchaser of a legal interest who does not have notice of the trust. The priest is not a purchaser. The seller has notice of the trust)

Question 4

True or False: The full legal owner of an asset has an equitable interest in the asset.

A) False

B) True

Answer 4

A) False

(The full legal owner of an asset has only a legal interest in the asset)

Question 5

A man holds shares on trust for a beneficiary. He is also the bailee of some goods. His house is subject to a legal charge and an equitable charge in favour of two of his creditors. He also has a number of unsecured creditors. The man is made bankrupt.

Who is likely to be most prejudicially affected by the man’s bankruptcy?

A) The bailor of the goods

B) The legal chargee

C) The beneficiary of the trust

D) The unsecured creditors

E) The equitable chargee

Answer 5

D) The unsecured creditors

(An unsecured creditor has a personal right against their debtor. Unlike property rights, personal rights do not enjoy ‘priority’ in the event of the debtor’s bankruptcy)

Question 6

A woman holds shares on trust for a beneficiary. She is also the bailee of some goods. In breach of her duties to the beneficiary and to the bailor, the woman sells the shares and the goods (for their full market value). The purchaser believes that the woman is the full legal owner of the shares and the goods.

Which one of the following statements is a correct description of the beneficiary’s and the bailor’s position in relation to the purchaser?

A) The purchaser is an agent for the beneficiary and the bailor

B) The beneficiary can recover the shares from the purchaser but the bailor cannot recover the goods from the purchaser

C) The bailor can recover the goods from the purchaser but the beneficiary cannot recover the shares from the purchaser

D) The bailor can recover the goods from the purchaser and the beneficiary can recover the shares from the purchaser.

E) The beneficiary cannot recover the shares from the purchaser and the bailor cannot recover the goods from the purchaser

Answer 6

C) The bailor can recover the goods from the purchaser but the beneficiary cannot recover the shares from the purchaser

(A bailor has a legal proprietary interest in the bailed goods. Generally, legal proprietary interests can be enforced against everyone. A beneficiary of a trust has an equitable proprietary interest in the trust property. Equitable proprietary interests can be enforced against everyone except a purchaser of a legal interest without notice)

Question 7

Perpetuity rule for trusts with beneficiaries or charitable purposes as objects?

A) Rule against remoteness of vesting

B) Rule against inalienability

Answer 7

A) Rule against remoteness of vesting

Question 8

Perpetuity rule for non-purpose charitable purpose trusts?

A) Rule against remoteness of vesting

B) Rule against inalienability

Answer 8

B) Rule against inalienability

Question 9

Which of the following best describes the rule against remoteness of vesting?

A) The trust property must vest within the common law period of 21 years. It must be clear from the outset that the trust property will vest within that time

B) The trust property must vest within the statutory period of 125 years. It is possible to wait and see whether it vests in that time

C) The trust property must vest within the common law period of 125 years. It is possible to wait and see whether it vests in that time

D) The trust property must vest within the statutory period of 125 years. It must be clear from the outset that the trust property will vest within that time

E) The trust property must vest within the common law period of 21 years. It must be clear from the outset that the trust property will vest within that time. It is possible to wait and see whether it vests in that time

Answer 9

B) The trust property must vest within the statutory period of 125 years. It is possible to wait and see whether it vests in that time

Question 10

What is the role of a trustee?

Answer 10

To manage trust property

Question 11

Who is the settlor?

Answer 11

The creator of the trust

Question 12

Who is the beneficiary?

Answer 12

The person who benefits from trust property

Question 13

Description of a self-declaration of trust?

Answer 13

Settlor retains legal title to trust property but holds in capacity as trustee for third party

Question 14

Description of a transfer on trust?

Answer 14

Settlor transfers legal title to trust property to hold on trust for a beneficiary

Question 15

True or false: A settlor can be the beneficiary of a trust they create

A) True

B) False

Answer 15

A) True

(A settlor can become the beneficiary of a trust over property which they previously held as full legal owner. One way of doing this is to transfer property on trust to a third party trustee to hold on trust for the settlor)

Question 16

True or false: Certainty of intention requires the settlor to understand that they are creating a trust

A) False

B) True

Answer 16

A) False

(Revisit your materials on Paul v Constance. The settlor does not even need to know what a trust is as long as their intention is consistent with the intention to create a the relationship which is characteristic of a trust)

Question 17

By his valid will, the testator made the following dispositions:

‘1. I give £10,000 to my solicitor to be applied for the benefit of my mother.

I give £10,000 to my wife absolutely, confident that she will do right by our children.’
The executors of the testator’s will have paid £10,000 to his widow and £10,000 to his solicitor.

Which one of the following statements is correct?

A) The solicitor holds the money on trust for the testator’s mother. The widow is the full legal owner of the money

B) The solicitor holds the money on trust for the testator’s mother. The widow holds the money on trust for the testator’s children

C) The solicitor and the widow are the equitable owners of the money

D) The widow holds the money on trust for the testator’s children. The solicitor is the full legal owner of the money

E) The solicitor and the widow are the full legal owners of the money

Answer 17

A) The solicitor holds the money on trust for the testator’s mother. The widow is the full legal owner of the money

(The testator has imposed a duty on the solicitor: the money is ‘to be’ applied for the testator’s mother. But the testator has not imposed a duty on the widow: the words ‘confident that she will’ are not imperative)

Question 18

Is the following a self-declaration on trust, transfer on trust (intention to create trust with third party as trustee), or showing no intention to create a trust?

‘I give my shares in Boots PLC to my brother to hold for my children’

Answer 18

Transfer on trust

Question 19

Is the following a self-declaration on trust, transfer on trust (intention to create trust with third party as trustee), or showing no intention to create a trust?

‘I give my house to my husband and trust that he will look after my children’

Answer 19

No intention to create a trust

Question 20

Is the following a self-declaration on trust, transfer on trust (intention to create trust with third party as trustee), or showing no intention to create a trust?

‘I am holding the contents of my bank account for you’

Answer 20

Self-declaration (intention to hold property on trust)

Question 21

True or false: Only land and chattels can be held on trust.

A) False

B) True

Answer 21

A) False

(Almost every asset and right can be held on trust. What was the subject matter of the trust in Hunter v Moss [1994] 1 WLR 452)

Question 22

The owner of 20 ordinary shares in a private company and 20 bars of gold bullion orally declares herself a trustee of 10 of the shares and 10 of the bars for a beneficiary. She does not segregate or otherwise identify the 10 shares or the 10 bars which are to form the subject matter of the trust.

Which one of the following statements best describes the effect of the declaration?

A) There is a valid trust of 10 shares and 10 bars

B) There is a valid trust of 10 shares but no trust in respect of the bars

C) Neither the shares nor the bars are subject to a trust

D) There is a valid trust of 10 bars but no trust in respect of the shares

E) There is a valid trust of 10 shares and 20 bars

Answer 22

B) There is a valid trust of 10 shares but no trust in respect of the bars

(A person can declare a trust of x shares out of a larger number of such shares without identifying which x shares are to form the subject matter of the trust, provided that they are all shares of the same type and in the same company: Hunter v Moss [1994] 1 WLR 452. However, there is not a trust of any of the bullion because a person cannot declare a trust of x physical items out of a larger number of such items without identifying the particular x items which are to form the subject matter of the trust: In re Goldcorp [1995] 1 AC 74)

Question 23

By his valid will, the testator (deceased) made the following disposition:

‘I give to my trustees my favourite car on trust for my daughter, and the sum credited to my current bank account on trust to give most of it to my daughter and the balance to my son.’

There is no available evidence of which car was the testator’s favourite.

Which one of the following statements best describes the effect of the disposition?

A) The trustees are entitled to full legal ownership of a car and of the sum credited to the testator’s bank account

B) The testator has created a valid trust of his favourite car but has not created a valid trust of the sum credited to his bank account

C) The testator has not created a valid trust

D) The testator has created a valid trust of his favourite car and of the sum credited to his bank account

E) The testator has created a valid trust of the sum credited to his bank account but has not created a valid trust of a car

Answer 23

C) The testator has not created a valid trust

(The intended trust of the car is void because it is not possible to identify which car was the testator’s favourite. The intended trust of the sum credited to the bank account is void because it is not possible to identify the beneficiaries’ beneficial entitlements – ‘most’ is too vague)

Question 24

True or false: Evidential uncertainty in connection with the objects of a trust is fatal to all types of trust.

A) True

B) False

Answer 24

B) False

(Although evidential uncertainty is fatal to some trusts – e.g. fixed trusts involving equal distribution amongst the members of a class – it is not fatal to all trusts: Re Baden’s Deed Trusts (No 2) [1973] Ch 9)

Question 25

**By his valid will, the testator made the following disposition: ‘I give £10,000 to my trustees to be distributed between my children and my friends in such shares as my trustees shall determine.’ The executors of the testator’s will have paid £10,000 to the trustees.** **Which one of the following describes the trustees’ position in relation to the £10,000?** A) The trustees must distribute the money amongst the testator’s friends B) The trustees may keep the money for their own benefit C) The trustees hold the money on a resulting trust for the testator’s estate D) The trustees must distribute the money amongst the testator’s children E) The trustees must distribute the money amongst the testator’s children and friends

Answer 25

C) The trustees hold the money on a resulting trust for the testator’s estate (The discretionary trust is void for uncertainty due to the inclusion of a conceptually uncertain term (‘friends’) in the description of the class of objects. As a result, the trustees hold the money on resulting trust for the testator’s estate)

Question 26

**By his valid will, the testator made the following disposition: ‘I give £10,000 to my trustees. £5,000 is to be distributed to my children, and £5,000 is to be distributed to British men, in such shares as my trustees shall determine.’ The executors of the testator’s will have paid £10,000 to the trustees.** **Which one of the following describes the trustees’ position in relation to the £10,000?** A) The trustees hold £5,000 on discretionary trust for the testator’s children. They may keep the other £5,000 for their own benefit B) The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on resulting trust for the testator’s estate C) The trustees hold £10,000 on resulting trust for the testator’s estate D) The trustees hold £5,000 on discretionary trust for British men and £5,000 on resulting trust for the testator’s estate E) The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on discretionary trust for British men

Answer 26

B) The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on resulting trust for the testator’s estate (The discretionary trust for the children is valid but the discretionary trust for British men is void for administrative unworkability, because the class of objects is too large. As a result, the trustees hold £5,000 on resulting trust for the testator’s estate)

Question 27

**What is the effect of failure to comply with section 53(1)(b) LPA 1925?** A) The trust is void B) The trust is unenforceable

Answer 27

B) The trust is unenforceable (Section 53(1)(b) LPA 1925 is an evidential requirement only)

Question 28

**True or false: Section 53(1)(b) LPA 1925 only applies to declarations of trusts of land.** A) False B) True

Answer 28

B) True (Section 53(1)(b) LPA 1925 contains the formalities requirements for declaring a trust of land. Declarations of trusts over other types of property do not need to comply with this provision)

Question 29

**Which of the following trusts would be unenforceable?** A) A person orally declares themselves to be holding their house on trust for their sibling and then sends the sibling a signed letter to confirm the terms of the trust B) A person calls their friend to inform them that they will be transferring their house to the friend to hold on trust for the person’s sibling. After the legal transfer has been effected, the person sends a signed letter to the friend confirming the terms of the trust C) A person sends their sibling a signed letter declaring that they now hold their house on trust for the sibling. The letter contains the terms of the trust D) A person orally declares that they are holding their house on trust for their sibling and then leaves their sibling a voicemail to confirm the terms of the trust E) A person sends a signed letter to their friend to inform them that they will be transferring their house to the friend, to hold on trust for the person’s sibling. The letter contains the terms of the trust. The person then effects the legal transfer of the house

Answer 29

D) A person orally declares that they are holding their house on trust for their sibling and then leaves their sibling a voicemail to confirm the terms of the trust (This trust does not satisfy the requirements of s53(1)(b) LPA 1925 as there is no signed, written evidence of the trust)

Question 30

**True or false: If a settlor intends to make a transfer on trust but fails to transfer legal title to the trustee, equity will automatically treat them as having made a self declaration of trust.** A) True B) False

Answer 30

B) False (Milroy v Lord makes clear that equity will not require the settlor to take on the role of trustee if that was not their intention)

Question 31

**A man wanted to gift shares to his brother. He completed a stock transfer form in favour of his brother intending to post it to him the next day. However, the man died unexpectedly that night. The man's validly executed will leaves the shares to his sister.** **Which of the following correctly explains what will happen to the shares?** A) The gift was constituted when the man completed the stock transfer form. The brother is the legal owner of the shares B) The brother is the beneficial owner of the shares. Completion of the stock transfer form can be interpreted as a self-declaration of trust over the shares C) The gift was constituted when the man completed the stock transfer form but, as this has not been communicated to his brother, the gift is imperfect. His sister will inherit the shares D) The brother is the legal owner of the shares but holds them on trust for the sister E) Although the man intended to make a gift of the shares it was not fully constituted before his death and so the gift is imperfect. His sister will inherit the shares under the will

Answer 31

E) Although the man intended to make a gift of the shares it was not fully constituted before his death and so the gift is imperfect. His sister will inherit the shares under the will (In order to transfer legal title, the man should have sent the signed stock transfer form and share certificate to the Company’s registrar under s1 of the Stock Transfer Act 1963. Legal title would pass on registration of the brother as shareholder. As this has not occurred, the gift is imperfect. Equity will not perfect an imperfect gift under the rule in Milroy v Lord or assist the brother as a volunteer)

Question 32

**A father writes to his daughter declaring himself to be holding his house on trust for his daughter. He signs the letter and sends it to his daughter.** **Has this trust been validly constituted?** A) Yes. As this is a self-declaration of trust there is no movement of legal title and so the trust is automatically constituted when it is declared by the father B) No. The transfer of beneficial ownership to the daughter must be registered with the land registry for the trust to be constituted C) Yes. In order to constitute a trust of land, the trust must be declared in writing and signed by the settlor. As the father has signed the letter, this means the trust has been constituted correctly D) No. The trust has not been constituted because the letter has not yet been received by the daughter. Until she has signed evidence of the declaration of trust, the trust is void E) No. In order to constitute a trust of land, the declaration of trust must be made by deed. Until this occurs, the trust is not constituted and so it is void

Answer 32

A) Yes. As this is a self-declaration of trust there is no movement of legal title and so the trust is automatically constituted when it is declared by the father (The settlor is declaring himself a trustee and so legal title to the property is already vested in him and the trust is automatically constituted. Note the formality requirement of s53(1)(b) LPA 1925 which requires a declaration of a new trust of land to be evidenced in signed writing. This is also satisfied here)

Question 33

**True or false: The rule in Re Rose can be used to perfect imperfect gifts but not to perfect imperfect trusts.** A) False B) True

Answer 33

A) False (The rule can be applied to the perfection of both gifts and trusts)

Question 34

**A man tells his wife that he will transfer shares to her. He completes a stock transfer form and sends it with the share certificate to the company’s registrar. The man dies and the shares are still registered in his name.** **Can the wife claim beneficial ownership of the shares?** A) No. Legal title passes on registration of the shares into her name. As this has not occurred before the man’s death, equity cannot perfect this imperfect gift B) No. Although she may have had a beneficial interest in the shares under Re Rose whilst the man is alive, this will not survive his death C) Yes. Re Rose is likely to perfect the imperfect gift D) Yes. Milroy v Lord provides that equity will always treat a failed gift as a self-declaration of trust E) Yes. Pennington v Waine will apply in this situation. The man has promised his wife that he will transfer the shares and so it would be unconscionable to go back on this

Answer 34

C) Yes. Re Rose is likely to perfect the imperfect gift (The correct method of transfer is used, the man has done everything in his power to effect the transfer and the documentation has ended up in the hands of the organisation capable of effecting the transfer i.e. the company’s registrar. Under Re Rose the wife will have a beneficial interest in the shares under a constructive trust and can force the transfer of legal title to her)

Question 35

**A woman wanted to give her house to her adult son. She completed a transfer deed and gave this to her solicitor who said he would finalise the gift on his return from holiday in two weeks’ time. The woman died the next day and in her validly executed will the house was left to her boyfriend.** **Will the son be able to claim a beneficial interest in the house?** A) Yes. The Re Rose exception to Milroy v Lord will apply because the woman completed the correct method of transfer and did everything in her power to effect the transfer B) Yes. The Re Rose exception to Milroy v Lord will apply because the woman has put the matter beyond her control C) No, the house will pass to her boyfriend. The Re Rose exception to Milroy v Lord will not apply because the woman has not put the matter beyond her own control D) Yes. Milroy v Lord provides that equity will always treat a failed gift as a self-declaration of trust. The woman is treated as holding the house on trust for her boyfriend as soon as she expresses the intention to make a gift E) No, because the woman has used the wrong method of transfer

Answer 35

C) No, the house will pass to her boyfriend. The Re Rose exception to Milroy v Lord will not apply because the woman has not put the matter beyond her own control (Re Rose will not apply because, whilst she used the correct method of transfer (a deed under s52(1) LPA 1925) this has not yet been sent to the land registry and so has not ended up in the hands of the person capable of effecting the transfer. Instead, the transfer documentation is with her own agent (her solicitor); an extension of herself. Therefore, she has not done all within her power to effect the transfer under Re Rose. Nor has she put the matter beyond her control as in Mascall v Mascall)

Question 36

**True or false: If a person dies after expressing an intention to make a gift but before delivering the asset to the donee, equity will perfect the imperfect gift as long as the donor did not change their mind before they died.** A) False B) True

Answer 36

A) False (It is not sufficient that the donor’s intention remained unchanged before their death. The gift must either be conditional upon death and satisfy the requirements of a donatio mortis causa, or it must be intended to be immediate and satisfy the requirements of Strong v Bird)

Question 37

**A man wishes to give his five acre paddock to his adult granddaughter to open a riding stable. The man’s solicitor completes the transfer documentation, but the man then dies unexpectedly before the granddaughter is registered as the owner. In the man’s validly executed will, his grandson is due to inherit the land. The granddaughter and her sister are appointed executors.** **Can the granddaughter claim beneficial ownership of the land?** A) Yes, under the rule in Strong v Bird B) No. The rule in Strong v Bird will not apply because she is not the only executor C) Yes, because her grandfather made the gift shortly before his death, meaning that it was a donatio mortis causa D) No, because she was not registered as the legal owner before the grandfather’s death E) Yes but she can only claim a beneficial share in half the land because there is another executor

Answer 37

A) Yes, under the rule in Strong v Bird (The requirements for Strong v Bird are satisfied. There is a continuing intention to make an immediate gift and the intended donee is one of the executors of the donor’s will (Re Stewart))

Question 38

**A professional musician decided to give her prized cello to her niece on her retirement. She took her niece out to lunch to announce the news, promising that she would arrange delivery as she played her last concert later that month. The woman died in an accident later that day. Her validly executed will, in which her niece was named executor, left all her instruments to a youth orchestra.** **Who owns the cello?** A) The cello will go to the niece who will be able to claim it under the rule in Strong v Bird because the cellist’s intention remained unchanged at her death B) The cello will go to the youth orchestra under the cellist’s will. The rule in Strong v Bird will not apply here as the niece has no written proof of the cellist’s intention C) The cello will go to the youth orchestra because the cellist did not contemplate her immediate death when attempting to make the gift and so the rule in Strong v Bird will not apply D) The cello will go to the niece who will be able to claim it under the rule in Strong v Bird because the cellist had a continuing and immediate intention to make a gift E) The cello will go to the youth orchestra under the cellist’s will. Strong v Bird will not apply as the cellist does not intend to make an immediate gift

Answer 38

E) The cello will go to the youth orchestra under the cellist’s will. Strong v Bird will not apply as the cellist does not intend to make an immediate gift (Although there is continuing intention to make a gift (see Re Gonin) and the intended donee is the executor of the donor’s estate (Re Stewart), the cellist does not intend to make an immediate gift. The facts are analogous with Re Freeland. The cellist intends to give the cello in the future. As such, there is no intention to make an immediate gift of the cello and so this would prevent the operation of fortuitous vesting)