When a trustee sells trust property, the property leaves the trust but the sale proceeds remain subject to it
A worked RES examination question on express trusts, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.
The question
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?
The answer, and why
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.
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