Paralegal Advanced Competency Exam (PACE) Practice Exam

What is an exculpatory clause typically found in a trust provision?

1. A requirement for trustee disclosure

2. A provision that increases the trustee's responsibilities

3. A clause that reduces the standard of care required of the trustee

4. A regulation for beneficiary payouts

The correct answer is: A clause that reduces the standard of care required of the trustee

An exculpatory clause in a trust provision is designed to limit the liability of the trustee for certain actions taken in the course of managing the trust. By reducing the standard of care required of the trustee, this clause allows trustees to avoid personal liability for decisions made that might result in losses to the trust, provided that those decisions were made in good faith and in accordance with the terms of the trust. This clause is particularly important in the context of trust law because it acknowledges the inherent risks involved in investment and management decisions. Having an exculpatory clause can encourage individuals to serve as trustees by providing them with some protection against legal repercussions for the outcomes of their actions, assuming those actions were not willful misconduct or gross negligence. In contrast, the other choices address aspects of trust management that do not align with the primary purpose of an exculpatory clause. A requirement for trustee disclosure emphasizes transparency in actions taken, increasing the trustee's responsibilities delineates a higher duty rather than a reduction, and regulations for beneficiary payouts focus on distributions, which are separate from the liability management meant by exculpatory clauses.