How to design a main list and sublists schema
One issue I have with your current model is that it would be possible for a FavouritesList to contain FavouritesListItems that belong to different Users, which to my understanding of your business logic shouldn't happen. I think a better way would be to store all FavouritesListItems that don't belong to a particular FavouritesList in some entity that is designated as a User's "UngroupedFavouritesList". There are a few ways to create that entity.

Method 1
Make the Title attribute in FavouritesList nullable. If it is null, then it is considered to be the User's "UngroupedFavouritesList".


Method 2

Add an "isUngrouped" flag to the FavouritesList table. If it's set to true, the it's considered the User's "UngroupedFavouritesList". The title attribute of FavouritesList would be null in this case.


Method 3

Make FavouritesList a parent table with UngroupedFavouritesList and NamedFavouritesList as child tables. This is achieved by having the primary key of UngroupedFavouritesList and NamedFavouritesList also be a foreign key to the FavouritesList's primary key.


Method 4

Create an "IFavouritesContainer" interface table, which both FavouritesList and User implement. This is achieved by User and FavouritesList having a foreign key to the IFavouritesContainer table. The FavouritesListItem then has a reference to the IFavouritesContainer that contains it. For ungrouped list items, its IFavouritesContainer would be the User. Note that the idea of implementing interfaces isn't a built-in thing with any RDMS that I know of, I'm just using the terms as an analogy to object oriented programming.


Pros and Cons for each method


    
        Method 1
        Pros:
        
            Simple
        
        Cons:
        
            It's not obvious that a null title means it's an "UngroupedFavouritesList
            It's possible for a User to have multiple "UngroupedFavouritesLists"
        
    
    
        Method 2
        Pros:
        
            Simple
            Clear what is an "UngroupedFavouritesList" and what isn't
        
        Cons:
        
            Storing a title for the "UngroupedFavouritesList", even though it will always be null. This is very minor.
            It's possible for a User to have multiple "UngroupedFavouritesLists"
        
    
    
        Method 3
        Pros:
        
            Clear what is an "UngroupedFavouritesList" and what isn't
            Tables don't contain unnecessary fields
        
        Cons:
        
            It's possible for a User to have multiple "UngroupedFavouritesLists"
            More complex
        
    
    
        Method 4
        Pros:
        
            Tables don't contain unnecessary fields
            The business logic of a User containing only one "UngroupedFavouritesList" but multiple "NamedFavouritesLists" is preserved
        
        Cons:
        
            More complex
            Not obvious what it means for a FavouritesListItem to be contained by Users vs FavouritesList