Paralegal Advanced Competency Exam (PACE) Practice Exam

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Study for the Paralegal Advanced Competency Exam (PACE). Utilize flashcards and multiple-choice questions designed to enhance your knowledge of paralegal standards and competencies. Prepare effectively and increase your chances of passing!

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What does the capital of a trust refer to?

  1. The total interest earned on the investments

  2. The principal amount within the trust

  3. The cash flow from rental properties

  4. The dividends from corporate investments

The correct answer is: The principal amount within the trust

The capital of a trust specifically refers to the principal amount within the trust. This principal is the original sum of money or assets that are placed into the trust and is intended to remain intact while the income generated from it is distributed according to the terms of the trust. The capital serves as the foundational asset that supports the trust's financial functions, including generating income for beneficiaries. Understanding the distinction between capital and other financial components is essential. While other answers refer to aspects of financial returns or incomes, such as interest earned or dividends, these are derived from the capital itself, not the capital as a standalone concept. The capital remains the core asset that sustains the trust, making it a crucial element in trust administration and financial planning.