Definition and Nature of a Trust: Master the Basics of Trust Law

Question 1

Which of the following is a disadvantage of establishing a trust?

Accepted Answer

Public access to trust information

Answer

Asset protection

Answer

Estate planning

Answer

Avoiding probate

Question 2

Which defining characteristic distinguishes a trust from a contract?

Accepted Answer

Equitable ownership held by a beneficiary

Answer

Privity of contract between parties

Answer

Consideration exchanged for a promise

Question 3

Which of the following is NOT an essential element of a trust?

Accepted Answer

Consideration

Answer

Settlor

Answer

Trustee

Answer

Beneficiary

Question 4

Which type of trust features fixed, ascertainable beneficiaries?

Accepted Answer

Fixed trust

Answer

Discretionary trust

Answer

Resulting trust

Answer

Implied trust

Question 5

What is the central responsibility of a trustee?

Accepted Answer

To manage and administer the trust property

Answer

To enforce the terms of the trust

Answer

To advise the beneficiaries

Answer

To appoint new trustees

Question 6

What is the purpose of the doctrine of unconscionability in trust law?

Accepted Answer

To prevent enforcement of unfair or inequitable trusts

Answer

To allow courts to modify trust terms

Answer

To give the settlor absolute power to revoke trusts

Answer

To prohibit creation of trusts for unlawful purposes

Question 7

Which duty requires a trustee to act in the best interests of the beneficiaries?

Accepted Answer

Duty of loyalty

Answer

Duty of care

Answer

Duty to account

Answer

Duty to invest

Question 8

What is the key difference between a bare trust and a discretionary trust?

Accepted Answer

Beneficiaries of a bare trust have fixed interests, while those of a discretionary trust do not.

Answer

A bare trust requires written documentation, while a discretionary trust can be created orally.

Answer

A bare trust is irrevocable, while a discretionary trust can be terminated by the settlor.

Answer

A bare trust is used for long-term purposes, while a discretionary trust is used for short-term purposes.

Question 9

Define a trust and outline its key characteristics.

Accepted Answer

A legal arrangement where an individual (settlor) transfers assets to another (trustee) to benefit a third party (beneficiary).

Answer

A joint ownership agreement for property among multiple parties.

Answer

A legal obligation to act or refrain from acting in a specific manner.

Question 10

What is the primary purpose of the rule against perpetuities?

Accepted Answer

To prevent trusts from lasting indefinitely, ensuring the timely distribution of property to beneficiaries.

Answer

To protect the rights of unborn and unascertained beneficiaries.

Answer

To ensure that property is managed responsibly and does not become tied up in legal disputes.

Answer

To prevent the accumulation of wealth in the hands of a few individuals or families.

Question 11

Which of the following is NOT a type of express trust?

Accepted Answer

Resulting trust

Answer

Inter vivos trust

Answer

Testamentary trust

Answer

Constructive trust

Question 12

What is the principal distinction between a settlor and a beneficiary?

Accepted Answer

The settlor is the person who creates and funds the trust, while the beneficiary is the person who receives the benefits of the trust.

Answer

The settlor has a legal duty to manage the trust property, while the beneficiary has no such duty.

Answer

The settlor can terminate the trust at any time, while the beneficiary cannot.

Answer

The settlor is personally liable for any debts or obligations of the trust, while the beneficiary is not.

Question 13

Which of the following is a key characteristic of a charitable trust?

Accepted Answer

Its purpose must be exclusively charitable, benefiting the public good.

Answer

It must be created for the benefit of a specific group of individuals.

Answer

It must be irrevocable, ensuring that its charitable mission is preserved.

Answer

It is exempt from all forms of taxation, including income and property taxes.

Question 14

What is the primary duty of a trustee in managing a trust?

Accepted Answer

To protect and administer the trust assets as outlined in the trust document and legal requirements.

Answer

To distribute trust income and assets at their discretion.

Answer

To represent the interests of the beneficiaries and advocate for their specific needs.

Question 15

Which of the following is NOT an essential element of a trust?

Accepted Answer

Consideration

Answer

Settlor

Answer

Trustee

Answer

Beneficiary

Question 16

What is the primary role of a trustee?

Accepted Answer

To manage the trust property for the benefit of the beneficiaries.

Answer

To distribute the trust property according to the settlor's wishes.

Answer

To protect the trust property from creditors of the beneficiaries.

Answer

To provide legal advice to the beneficiaries.

Question 17

Which of the following is a characteristic of a discretionary trust?

Accepted Answer

The trustee has discretion in distributing the trust property among the beneficiaries.

Answer

The beneficiaries have a vested interest in the trust property.

Answer

The trust is created for a specific purpose.

Answer

The trustee has a duty to distribute the trust property equally among the beneficiaries.

Question 18

What is the primary fiduciary duty of a trustee?

Accepted Answer

Act in the best interests of the beneficiaries.

Answer

Preserve the trust property.

Answer

Follow the trust deed strictly.

Answer

Avoid conflicts of interest.

Question 19

Which elements are essential for the creation of a valid trust?

Accepted Answer

Settlor, trustee, trust property, and beneficiary

Answer

Settlor, intention, trust property, and beneficiary

Answer

Trustee, beneficiary, trust property, and consideration

Answer

Settlor, trustee, trust property, and fiduciary duty

Question 20

Which legal concept refers to the trustee's ethical obligation to act solely in the best interests of the beneficiaries?

Accepted Answer

Fiduciary Duty

Answer

Beneficiary Duty

Answer

Settlor Duty

Answer

Prudent Investor Rule

Question 21

What is a resulting trust primarily used for?

Accepted Answer

Restoring property to its rightful owner

Answer

Holding property for a specific purpose

Answer

Benefiting a charitable organization

Answer

Avoiding tax liability

Question 22

Which statement about the validity of a trust is accurate?

Accepted Answer

Trusts must be in writing to be valid for more than three years.

Answer

Trusts require consideration to be valid.

Answer

Trusts can always be created orally.

Answer

Trusts can be created for any purpose.

Question 23

What is the result when the purpose of a trust has been fulfilled?

Accepted Answer

The trust is extinguished

Answer

The trust continues indefinitely

Answer

The property reverts to the settlor

Answer

The property is distributed to the beneficiaries

Question 24

Which of the following is NOT a common reason for establishing a trust?

Accepted Answer

Speculating on investments

Answer

Estate planning

Answer

Protecting assets

Answer

Avoiding taxes

Question 25

What legal principle allows a court to modify or terminate a trust if circumstances have significantly changed?

Accepted Answer

Cy-près Doctrine

Answer

Rule of Perpetuities

Answer

Doctrine of Mistake

Answer

Constructive Trust Doctrine