Paralegal Advanced Competency Exam (PACE) Practice Exam

Who is referred to as an income beneficiary in trust law?

1. A person who manages the trust

2. A person required to pay taxes on trust income

3. A person entitled to receive income from a trust

4. A person who creates a trust

The correct answer is: A person entitled to receive income from a trust

In trust law, the term "income beneficiary" specifically designates a person who is entitled to receive income generated by the trust's assets. This means that any profits, dividends, interest, or distributions that arise from the trust's investments are allocated to the income beneficiary according to the terms set out in the trust agreement. The income beneficiary plays a vital role in the operation of the trust, as their interests are directly linked to the income produced from the trust's assets. The other roles mentioned, such as the person who manages the trust or the one responsible for paying taxes on trust income, do not accurately reflect the function of an income beneficiary. The creator of the trust, known as the grantor, is distinct from the income beneficiary since their primary role is to establish and fund the trust rather than receive income from it.