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Trusts: Types and Classification

Description: This quiz will test your knowledge of the different types and classifications of trusts.
Number of Questions: 14
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Tags: trusts types of trusts classification of trusts
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What is a trust?

  1. A legal entity that holds property for the benefit of another person.

  2. A contract between two or more parties.

  3. A type of investment account.

  4. A government agency.

Show answer
Correct Option: A
Explanation:

A trust is a legal entity that holds property for the benefit of another person. The person who creates the trust is called the settlor, the person who receives the benefit of the trust is called the beneficiary, and the person who manages the trust is called the trustee.

What are the two main types of trusts?

  1. Public and private trusts.

  2. Revocable and irrevocable trusts.

  3. Simple and complex trusts.

  4. Living and testamentary trusts.

Show answer
Correct Option: A
Explanation:

The two main types of trusts are public trusts and private trusts. Public trusts are created for the benefit of the general public, while private trusts are created for the benefit of a specific individual or group of individuals.

What is a revocable trust?

  1. A trust that can be changed or terminated by the settlor.

  2. A trust that cannot be changed or terminated by the settlor.

  3. A trust that is created during the settlor's lifetime.

  4. A trust that is created after the settlor's death.

Show answer
Correct Option: A
Explanation:

A revocable trust is a trust that can be changed or terminated by the settlor. This type of trust is often used for estate planning purposes, as it allows the settlor to retain control over the trust property during their lifetime.

What is an irrevocable trust?

  1. A trust that can be changed or terminated by the settlor.

  2. A trust that cannot be changed or terminated by the settlor.

  3. A trust that is created during the settlor's lifetime.

  4. A trust that is created after the settlor's death.

Show answer
Correct Option: B
Explanation:

An irrevocable trust is a trust that cannot be changed or terminated by the settlor. This type of trust is often used for charitable purposes, as it ensures that the trust property will be used for the intended purpose.

What is a simple trust?

  1. A trust that is used to hold and distribute income to the beneficiary.

  2. A trust that is used to hold and accumulate income for the benefit of the beneficiary.

  3. A trust that is used to hold and distribute principal to the beneficiary.

  4. A trust that is used to hold and accumulate principal for the benefit of the beneficiary.

Show answer
Correct Option: A
Explanation:

A simple trust is a trust that is used to hold and distribute income to the beneficiary. This type of trust is often used for short-term purposes, such as providing income to a child until they reach a certain age.

What is a complex trust?

  1. A trust that is used to hold and distribute income to the beneficiary.

  2. A trust that is used to hold and accumulate income for the benefit of the beneficiary.

  3. A trust that is used to hold and distribute principal to the beneficiary.

  4. A trust that is used to hold and accumulate principal for the benefit of the beneficiary.

Show answer
Correct Option: B
Explanation:

A complex trust is a trust that is used to hold and accumulate income for the benefit of the beneficiary. This type of trust is often used for long-term purposes, such as providing for the beneficiary's retirement.

What is a living trust?

  1. A trust that is created during the settlor's lifetime.

  2. A trust that is created after the settlor's death.

  3. A trust that is used to hold and distribute income to the beneficiary.

  4. A trust that is used to hold and accumulate income for the benefit of the beneficiary.

Show answer
Correct Option: A
Explanation:

A living trust is a trust that is created during the settlor's lifetime. This type of trust is often used for estate planning purposes, as it allows the settlor to transfer assets to the trust while they are still alive.

What is a testamentary trust?

  1. A trust that is created during the settlor's lifetime.

  2. A trust that is created after the settlor's death.

  3. A trust that is used to hold and distribute income to the beneficiary.

  4. A trust that is used to hold and accumulate income for the benefit of the beneficiary.

Show answer
Correct Option: B
Explanation:

A testamentary trust is a trust that is created after the settlor's death. This type of trust is often used to provide for the settlor's spouse and children after their death.

What is a charitable trust?

  1. A trust that is created for the benefit of a specific individual or group of individuals.

  2. A trust that is created for the benefit of the general public.

  3. A trust that is created during the settlor's lifetime.

  4. A trust that is created after the settlor's death.

Show answer
Correct Option: B
Explanation:

A charitable trust is a trust that is created for the benefit of the general public. This type of trust is often used to support educational, religious, or scientific organizations.

What is a spendthrift trust?

  1. A trust that is designed to protect the beneficiary from their own spending habits.

  2. A trust that is designed to protect the beneficiary from creditors.

  3. A trust that is designed to provide for the beneficiary's education.

  4. A trust that is designed to provide for the beneficiary's retirement.

Show answer
Correct Option: A
Explanation:

A spendthrift trust is a trust that is designed to protect the beneficiary from their own spending habits. This type of trust is often used to provide for a beneficiary who is not responsible with money.

What is a discretionary trust?

  1. A trust in which the trustee has the discretion to distribute income and principal to the beneficiary.

  2. A trust in which the trustee is required to distribute income and principal to the beneficiary.

  3. A trust in which the beneficiary has the right to demand that the trustee distribute income and principal.

  4. A trust in which the beneficiary has the right to remove the trustee.

Show answer
Correct Option: A
Explanation:

A discretionary trust is a trust in which the trustee has the discretion to distribute income and principal to the beneficiary. This type of trust is often used to provide for a beneficiary who is not yet responsible enough to manage their own finances.

What is a mandatory trust?

  1. A trust in which the trustee has the discretion to distribute income and principal to the beneficiary.

  2. A trust in which the trustee is required to distribute income and principal to the beneficiary.

  3. A trust in which the beneficiary has the right to demand that the trustee distribute income and principal.

  4. A trust in which the beneficiary has the right to remove the trustee.

Show answer
Correct Option: B
Explanation:

A mandatory trust is a trust in which the trustee is required to distribute income and principal to the beneficiary. This type of trust is often used to provide for a beneficiary who is not yet responsible enough to manage their own finances.

What is a resulting trust?

  1. A trust that is created when a person transfers property to another person without specifying how the property is to be used.

  2. A trust that is created when a person dies without a will.

  3. A trust that is created when a person creates a trust for an illegal purpose.

  4. A trust that is created when a person creates a trust for a purpose that is impossible to achieve.

Show answer
Correct Option: A
Explanation:

A resulting trust is a trust that is created when a person transfers property to another person without specifying how the property is to be used. This type of trust is often used to provide for a beneficiary who is not yet responsible enough to manage their own finances.

What is a constructive trust?

  1. A trust that is created by a court to prevent unjust enrichment.

  2. A trust that is created by a court to provide for a beneficiary who is not yet responsible enough to manage their own finances.

  3. A trust that is created by a court to provide for a beneficiary who is not yet responsible enough to manage their own finances.

  4. A trust that is created by a court to provide for a beneficiary who is not yet responsible enough to manage their own finances.

Show answer
Correct Option: A
Explanation:

A constructive trust is a trust that is created by a court to prevent unjust enrichment. This type of trust is often used when a person has acquired property through fraud, duress, or undue influence.

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