Questions and Answers
Who is responsible for overseeing a trust and ensuring the trust agreement is enforced?
What component of the trust agreement specifies how the trust should be managed?
In a trust fund, which of the following is true regarding the use of earnings and principal?
What is a key difference between an external investment pool and an internal investment pool?
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Which term refers to the individual or entity that creates a trust?
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Which statement accurately describes the difference between trust funds and governmental funds?
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What is a characteristic of investment pools administered through a trust agreement?
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Which of the following defines the principal or corpus of a trust?
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What distinguishes an endowment from other types of trust funds?
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What shift in pension fund accounting does current guidance emphasize?
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Which type of fund is established by individuals or organizations to manage assets for specific purposes?
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Why is it necessary to revalue fund assets during contributions or distributions?
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Which of the following correctly describes a Custodial Fund?
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What is a key characteristic of Custodial Funds?
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Which fund is specifically designed for managing retirement and employee benefits?
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Which fund type involves contributions not qualifying as an investment or pension trust fund?
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What role does the government play in Custodial Funds?
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Investment Trust Funds are primarily used to account for which of the following?
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Which statement about Special Assessment Debt Service Custodial Funds is true?
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Which of the following is NOT a type of fiduciary fund?
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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.
