STEP Trust and Estate Law 1 — Questions and Answers
Question 1: What is the primary role of a trustee in a trust arrangement?
- To enforce tax laws
- To invest only in personal assets
- To manage assets for beneficiaries (Correct answer)
- To alter the trust for personal gain
Correct answer: To manage assets for beneficiaries
A trustee has a fiduciary duty to manage the trust assets in the best interest of the beneficiaries, according to the terms of the trust.
Question 2: Which document legally initiates the creation of a trust?
- Will
- Power of attorney
- Trust deed (Correct answer)
- Beneficiary agreement
Correct answer: Trust deed
A trust deed, also known as a declaration of trust, is the formal legal document that sets out the terms and conditions of the trust.
Question 3: What happens to a revocable trust upon the death of the settlor?
- It terminates automatically
- It continues and becomes irrevocable (Correct answer)
- It transfers to the probate court
- It reverts to the state
Correct answer: It continues and becomes irrevocable
A revocable trust typically becomes irrevocable upon the settlor’s death, meaning its terms can no longer be changed.
Question 4: Which of the following best describes a testamentary trust?
- A trust created for minors
- A trust created while the settlor is alive
- A trust that operates in a foreign jurisdiction
- A trust created by a will upon death (Correct answer)
Correct answer: A trust created by a will upon death
A testamentary trust is created through a will and only takes effect after the death of the person making the will (the testator).
Question 5: Which party holds legal title to trust property?
- Beneficiary
- Settlor
- Trustee (Correct answer)
- Executor
Correct answer: Trustee
In a trust, the trustee holds legal title to the property and is responsible for managing it in accordance with the trust's terms.
Question 6: What is the role of the executor in estate administration?
- To amend the trust terms
- To create a new will
- To distribute estate assets according to the will (Correct answer)
- To supervise trust income taxes
Correct answer: To distribute estate assets according to the will
An executor is appointed to carry out the terms of a will, including gathering assets, paying debts, and distributing the estate to beneficiaries.
STEP Trust and Estate Law 1
What is the primary role of a trustee in a trust arrangement?