Trusts and Wills

Lesson

Trusts are legal arrangements that allow a third party, known as a trustee, to hold and manage assets on behalf of beneficiaries. Wills are legal documents outlining how an individual's assets will be distributed upon death. Both trusts and wills can be used to minimize estate taxes and ensure that assets are distributed according to the individual's wishes.

Practice Question #1

Which of the following is a key difference between a trust and a will?

A) A trust is a legal arrangement, while a will is a legal document.

B) A trust involves a trustee, while a will involves an executor.

C) A trust is used for estate planning, while a will is used for asset management.

D) A trust is revocable, while a will is irrevocable.

Select an option above to see an explanation here.

A) Both trusts and wills are legal arrangements/documents. B) A trustee manages assets in a trust, while an executor carries out the terms of a will. C) Both trusts and wills are used for estate planning and asset management. D) Trusts can be either revocable or irrevocable, while wills are generally considered irrevocable upon death.

Terms

Trust:: A legal arrangement in which a trustee holds and manages assets to benefit beneficiaries.
Will:: A legal document outlining how an individual's assets will be distributed upon death.
Trustee:: The person or entity responsible for managing the assets in a trust.
Beneficiary:: The person or entity benefits from a trust or will.
Probate:: The legal process of validating a will and distributing assets according to its terms.
Intestate:: When a person dies without a valid will.

Practice Question #2

What is the primary purpose of establishing a revocable trust?

A) To avoid probate

B) To minimize estate taxes

C) To provide for minor children

D) To manage assets during incapacity

Select an option above to see an explanation here.

A) Revocable trusts are primarily used to avoid probate, which can be lengthy and costly. B) Both revocable and irrevocable trusts can help minimize estate taxes, but irrevocable trusts are more commonly used for this purpose. C) Trusts can provide for minor children, but this is not the primary purpose of a revocable trust. D) Trusts can help manage assets during incapacity, but this is not the primary purpose of a revocable trust.

Do Not Confuse With

Executor:: The person responsible for carrying out the terms of a will differs from a trustee who manages assets in a trust.

Practice Question #3

Which of the following is NOT a role of a trustee in a trust?

A) Managing the assets in the trust

B) Distributing assets according to the terms of a will

C) Acting in the best interest of the beneficiaries

D) Ensuring the trust complies with applicable laws and regulations

Select an option above to see an explanation here.

A) Managing the assets in the trust is a vital role of a trustee. B) Distributing assets according to the terms of a will is the role of an executor, not a trustee. C) Acting in the best interest of the beneficiaries is a key role of a trustee. D) Ensuring the trust complies with applicable laws and regulations is a key role of a trustee.

Historical Example

A wealthy individual died in the early 20th century, leaving behind a large estate. The individual had established a trust to manage their assets and provide for their family. The trust was designed to minimize estate taxes and ensure the assets were distributed according to the individual's wishes.