Ch 4 Quiz

A general power of appointment allows the donee to transfer the property to anyone, including the donee and the creditors of the donee.

False

A testamentary trust may be irrevocably established during the grantor's life.

False

A revocable trust is not permitted to hold an unincorporated business interest.

False - A revocable trust may hold a sole proprietorship or partnership interest. This is a business continuation technique that may be used to prevent the termination of an unincorporated business by operation of law at the death of an owner.

A trustee receives powers from the probate court and is regulated in the management and investment activities by the court.

False - A trustee receives his or her powers from the trust instrument and is not regulated by the court unless it is a testamentary trust created under a will. Of course, if the instrument is ambiguous or silent with regard to certain powers, the laws of the jurisdiction in which the trust is located will be looked to for guidance.

In choosing the right executor, the general rule of thumb is to select a close family member who knows the testator well

False - Although a close family member may be the individual who best knows the testator's wishes, there are other important factors a person should consider when nominating an executor. These factors could include whether or not the potential executor (1) has the financial and administrative acumen to be an executor (2) has sufficient time to carry out the duties of an executor (3) has sufficient knowledge of the testator's business, family, and personal matters (4) is likely to be compatible with estate beneficiaries

Because executors have the limited task of transferring property for the estate, it is not necessary that they have particular skills or knowledge regarding a testator's affairs.

False - An executor steps into the shoes of a decedent at his or her death. While it is not essential that the executor have specialized knowledge in managing the testator's property or financial matters, the executor will be called upon to take responsibility for business, financial, and administrative decisions during the estate settlement period.

A disadvantage of a living irrevocable trust is that it will pass through probate.

False - An irrevocable inter vivos trust will avoid probate.

The situs of a trust is always the same as the grantor's domicile because the law of the grantor's state of domicile governs the grantor's property.

False - One of the advantages of creating a trust is that one may choose the situs of the trust as well as the laws that will govern its administration. It need not be the domicile of the grantor or any state in which the grantor has a residence.

When the grantor establishes a trust, it is always for the benefit of other persons for whose welfare the grantor may be responsible.

False - The grantor or settlor of a trust may establish a trust for the benefit of any individual, including himself or herself or a charitable organization. The grantor may name certain individuals as income beneficiaries and other individuals as remainder persons or second-generation beneficiaries.

The rule against perpetuities has been abolished in most states, and modern trusts may be established for unlimited duration

False - The rule against perpetuities is valid in most states today and prevents the creation of a trust that does not vest property within the period of some life that is in existence at the creation of the trust plus 21 years.

A statement in the trust instrument as to the revocability or irrevocability of a trust is not necessary or desirable as state law prevails.

False - To ensure the grantor's wishes as to the revocability or irrevocability of the trust, a statement specifying whether it is revocable or irrevocable should always be contained in the trust instrument. In the absence of such a statement, state law will prevail.

The Uniform Prudent Investor Act of 1994 strictly prohibits the delegation of investment powers by a fiduciary.

False - Under the Uniform Prudent Investor Act, fiduciaries are encouraged to delegate to professionals when necessary or when the particular arrangement would be improved.

A major purpose of establishing a trust may be to provide an element of character or skill missing in the grantor or the beneficiaries.

True

A spendthrift clause may be designed to protect the corpus of the trust from the creditors of a beneficiary.

True

Adverse tax consequences can result if the beneficiary of a trust has the power under the trust to remove a trustee and appoint himself or herself instead.

True

An irrevocable trust is often used for tax planning purposes as an income-shifting device.

True

Fiduciaries hold a special position of trust in relationship to the beneficiaries whose property they manage

True

State law generally limits the time that a trust is permitted to accumulate income.

True

The terms of charitable trusts should not provide a benefit for a specifric individual.

True

Through the use of a living trust, the grantor has the opportunity to observe the management and investment skills of the trustee during the grantor's lifetime.

True