SQE1 · FLK2 · Trusts
The three certainties — SQE1 Trusts question
A worked single-best-answer question on the three certainties, with why each wrong option is wrong — the way SQE1 traps candidates.
The three certainties
Harold ran a bakery in Leeds for 40 years before retiring. He transferred £300,000 to two trustees 'to be divided equally among all persons who have at any time worked at my Leeds bakery'. The bakery's payroll records were destroyed in a flood some years ago, and the trustees cannot identify everyone who worked there. They have so far traced 85 former staff.
Which of the following best describes the validity of the trust?
- AThe trust fails, because a fixed trust is valid only if a complete list of the beneficiaries can be drawn up.
- BThe trust is valid, because it is enough that the trustees can say of any given person whether he or she is or is not within the class.
- CThe trust is valid, and the trustees may divide the fund equally among the 85 former staff they have traced.
- DThe trust fails, because the phrase 'worked at my Leeds bakery' is conceptually uncertain.
- EThe trust is valid, and the court will direct a cy-près scheme for the fund.
Show answer and reasoning
A is the best answer. A gift 'equally among' a class is a fixed trust, and each beneficiary's share depends on the total number of beneficiaries. A fixed trust therefore requires that a complete list of the objects can be compiled (IRC v Broadway Cottages Trust). As the records are lost and the class cannot be completely ascertained, the trust fails.
Rule: A fixed trust is valid only if a complete list of all the beneficiaries can be drawn up.
- B The 'is or is not' test applies to discretionary trusts (McPhail v Doulton), not to a fixed trust for equal division. (wrong rule)
- C Dividing among only those found would defeat the shares of untraced beneficiaries, so a complete list is required. (wrong rule)
- D Working at a particular bakery is conceptually clear; the problem is evidential, which is fatal for a fixed trust. (right rule, wrong facts)
- E Cy-près applies to charitable trusts; this is a private trust for a class of individuals. (wrong rule)
Source: IRC v Broadway Cottages Trust [1955] Ch 20; McPhail v Doulton [1971] AC 424