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Paper 1 · Lesson 5 — Co-ownership, Trusts and Succession

Express trusts

Express trusts: settlor / trustee / beneficiary, the trustee cap and corporate trustees, creation by deed.

2 questionsAnswers & explanations includedFree — no sign-up

Question 1

Mr Raymond wants to set up a trust over a shophouse for his young daughter during his lifetime and, to save on fees, to act as the trustee himself. Over coffee, his friend says he plans to do exactly the same thing — but through his will, so that the trust for his own children takes effect only after he has died. Both men like the idea of keeping matters in their own hands and sparing the estate a professional trustee's fees, and each asks whether he may be his own trustee.

Which statement is correct?

  1. A. Mr Raymond may act as trustee of his own trust, but his friend cannot act as trustee of his.
  2. B. Neither may act as trustee, because whoever creates a trust cannot also serve as its trustee.
  3. C. Both may act as trustee of their own trusts, since the choice of trustee is theirs to make.
  4. D. Mr Raymond cannot act as trustee, but his friend may act as trustee of the trust he creates.
Show the answer and full explanation

Answer: A

The rule. For a trust created during the settlor's lifetime, the settlor may appoint himself as trustee. A testamentary trust takes effect only on the settlor's death, so by definition he cannot then serve as its trustee.

Why A is correct. Mr Raymond's trust is inter vivos, so he may hold as trustee. His friend's trust arises through his will and operates only once he has died, so he cannot be its trustee.

The other options.

  • B denies both. It confuses the rule that a trustee owes duties to the beneficiary with a supposed bar on the settlor serving — there is no such bar for a living trust.
  • C allows both. It overlooks that a dead settlor cannot act as trustee of his own testamentary trust.
  • D reverses the pair, allowing the impossible case and forbidding the permitted one.

Exam note. Ask when the trust takes effect. A living settlor can wear both hats; a testamentary settlor is, by the time the trust bites, unavailable.

For a trust created during the settlor's lifetime, the settlor may appoint himself as trustee →

Question 2

A trustee holds an investment apartment on trust for a beneficiary who is still a minor. Judging the market to be near its peak, the trustee sells the apartment at a good price, meaning to place the money in other investments for the child until she comes of age.

Which statement is correct?

  1. A. The proceeds are held for her on the same trust that held the apartment before it was sold.
  2. B. The proceeds fall outside the trust, which attached to the apartment and nothing else.
  3. C. The proceeds belong to the trustee, who carried the risk of choosing to sell the flat.
  4. D. The proceeds must be paid over to her at once, since the trust comes to an end on the sale.
Show the answer and full explanation

Answer: A

The rule. When a trustee sells trust property, the property leaves the trust but the sale proceeds remain subject to it. The trust attaches to whatever now represents the property.

Why A is correct. The apartment is gone from the trust, but the money it fetched is held on the same trust for the beneficiary, to be reinvested or dealt with under the trust's terms.

The other options.

  • B treats the trust as fixed to the apartment alone. The trust follows the value into the proceeds.
  • C gives the proceeds to the trustee. A trustee never takes trust value for himself.
  • D ends the trust on the sale. A sale by the trustee does not terminate the trust; the proceeds stay on trust.

Exam note. Sale converts the asset, not the trust. Follow the money — the proceeds carry the trust with them.

When a trustee sells trust property, the property leaves the trust but the sale proceeds remain subject to it →

Practise it under exam conditions

Single questions test whether you know a rule. The paper tests whether you can find it in a scenario, at speed, with three plausible alternatives in the way. Start with the free 20-question half-paper.

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