Paralegal Advanced Competency Exam (PACE) Practice Exam

What kind of trust exists between living individuals?

1. Testamentary trust

2. Living trust

3. Revocable trust

4. Charitable trust

The correct answer is: Living trust

A living trust is a trust that is created during the lifetime of the individual who sets it up, known as the grantor. This type of trust is designed to hold the grantor's assets while they are alive and to simplify the transfer of those assets to beneficiaries upon the grantor's death. It is often used as a tool for estate planning to avoid probate, as the assets are transferred directly to the beneficiaries without going through the courts. Living trusts can be revocable or irrevocable, but the defining characteristic is that they are established while the grantor is still alive, distinguishing them from other types of trusts like testamentary trusts, which are created after the grantor's death through a will. This feature of being active during a person's lifetime is why the living trust is the correct choice in this context. Additionally, living trusts can be modified or dissolved by the grantor as long as they are revocable, further enhancing their flexibility in estate planning strategies.