Understanding Trust Funds and Agreements

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Questions and Answers

Who is responsible for overseeing a trust and ensuring the trust agreement is enforced?

Trust Maker

Grantor

Trustee (correct)

Beneficiary

What component of the trust agreement specifies how the trust should be managed?

Trust Management Instructions

Trust Agreement (correct)

Trust Purpose

Trustee Responsibilities

In a trust fund, which of the following is true regarding the use of earnings and principal?

Both earnings and principal can be spent only in governmental funds

Usage depends solely on the trust agreement (correct)

Earnings may always be spent but not the principal

Principal is always available for spending

What is a key difference between an external investment pool and an internal investment pool?

Earnings are allocated based on contributions in external pools Signup and view all the answers

Which term refers to the individual or entity that creates a trust?

Grantor Signup and view all the answers

Which statement accurately describes the difference between trust funds and governmental funds?

Trust funds benefit programs outside of government Signup and view all the answers

What is a characteristic of investment pools administered through a trust agreement?

They are reported as investment trust funds. Signup and view all the answers

Which of the following defines the principal or corpus of a trust?

The fair value of assets placed in the trust. Signup and view all the answers

What distinguishes an endowment from other types of trust funds?

The principal must be held intact to generate income. Signup and view all the answers

What shift in pension fund accounting does current guidance emphasize?

An accounting-based approach using economic resources measurement. Signup and view all the answers

Which type of fund is established by individuals or organizations to manage assets for specific purposes?

Private-purpose trust funds Signup and view all the answers

Why is it necessary to revalue fund assets during contributions or distributions?

To ensure equitable division of earnings and value changes. Signup and view all the answers

Which of the following correctly describes a Custodial Fund?

Funds held by the government as a custodian for others. Signup and view all the answers

What is a key characteristic of Custodial Funds?

The government cannot make administrative decisions regarding the assets. Signup and view all the answers

Which fund is specifically designed for managing retirement and employee benefits?

Pension Trust Fund Signup and view all the answers

Which fund type involves contributions not qualifying as an investment or pension trust fund?

Private-Purpose Trust Fund Signup and view all the answers

What role does the government play in Custodial Funds?

Acts as a custodian or agent without direct decision-making power. Signup and view all the answers

Investment Trust Funds are primarily used to account for which of the following?

External assets and liabilities in a multi-organizational investment pool. Signup and view all the answers

Which statement about Special Assessment Debt Service Custodial Funds is true?

They manage payments for special assessment debts collected from property owners. Signup and view all the answers

Which of the following is NOT a type of fiduciary fund?

Operational Fund Signup and view all the answers

Study Notes

Trust Fund Fundamentals

A trust fund is a legal entity designed to hold property for an individual or group.
The creator of the trust, known as the grantor, trustor, settlor, or trust maker, establishes the trust agreement.
Beneficiaries are the individuals or entities that benefit from the trust.
A trustee oversees the trust and enforces the trust agreement.
The trust agreement outlines the trust's purpose, assets, and the responsibilities of the trustee(s).

Comparing Governmental and Trust Funds

Special revenue funds benefit government programs and allow for spending of both principal and earnings.
Permanent funds benefit government programs with only earnings available for spending.
Trust funds provide benefits to those outside governmental programs; spending from these funds depends on the trust agreement.

Investment Pools

Government funds can combine idle cash, and short- and long-term investments.
Funds often pool investments with managers, either internally or externally.
External investment pools allocate earnings proportionately to participants based on their contributions.
Revaluation of fund assets is necessary with any contributions or distributions.
Investment pools reported under a trust agreement are classified as investment trust funds; those without such agreements are custodial funds.

Private-Purpose Trust Funds

Individuals or organizations can create trust agreements that transfer assets to another party either immediately or in the future.
The fair value of the transferred assets is termed the principal or corpus.
Endowments are trusts requiring the principal to remain intact; income generated is used for specific purposes defined by the trustor.

Pension Trust Funds

The accounting for pension funds has transitioned to a broader reporting approach focused on pension liabilities and expenses.
This method enhances understanding of employers' net pension positions beyond just contributions and funding benchmarks.

Fiduciary Fund Types

Custodial Fund: Resources held by the government as a custodian for others, such as taxes collected for a school district.
Investment Trust Fund: Manages external assets, liabilities, and changes in net positions for multi-organizational investment pools.
Pension Trust Fund: Collects and manages employee benefit contributions, making payments to retirees and disabled employees.
Private-Purpose Trust Fund: Accounts for contributions under a trust agreement that do not qualify as an investment or pension trust fund.

Custodial Funds

Custodial funds are fiduciary in nature but are not classified under the three types of trust funds.
Assets in custodial funds benefit parties not associated with the government managing the fund, indicating an agency role.
An example includes the government managing special assessment collections and remitting payments for debt service.

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Description

This quiz covers the fundamental concepts of trust funds, including the roles of the grantor, trustee, and beneficiary. Learn about the trust agreement and its importance in managing property on behalf of individuals or groups. Test your knowledge on this essential legal framework.