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📊 NISM Series X-B Chapter 15 of 20 ⚖ 10 marks weightage Case-Based ✓

Ch.15: Tools for Estate Planning

Practice questions for NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination (mandated by SEBI under the Investment Advisers Regulations, 2013). Chapter 15 carries 10 out of 150 marks in the final examination. The exam has 90 MCQs + 9 case-based sets (5 sub-questions each, mixed 1-mark and 2-mark weighting), 180-minute duration, 60% passing score, and 25% negative marking on the marks of each wrong answer.

40
MCQ
1
Case Sets
45
Total Qs
10
Exam Marks
60%
Pass Score
−25%
Neg. Marking

What You Will Learn in This Chapter

Key Terms:willtrustnominationgift deedprobateexecutorpower of attorneyliving will

Multiple Choice Questions (40)

Q1 MCQ · 1 mark EasyTrust vs. Will

Which of the following statements correctly highlights a key difference between a Family Trust and a Will?

AA Will becomes effective as soon as it is created, while a trust goes into effect only when the creator dies.
BA Will typically covers properties transferred to the trust, whereas a trust covers property in one’s name at death.
✓A Will may pass through probate, which involves court oversight, while a trust generally does not.
DA Will remains a private record, whereas a family trust can become a public record.
💡 As per Section 15.6.5, 'A Will may pass through probate which means the court overseas the administration of the Will... A trust does not pass through a probate, therefore, no court overseas the trust.'
Q2 MCQ · 1 mark HardTrust as a Pass-through Entity

As a pass-through entity, how is the income of a private trust typically handled for taxation purposes?

AThe receipts by the trust/trustee are directly taxable as the trust has a separate legal identity.
✓The income of the beneficiary is taxable, and the trustee pays the tax in a representative capacity.
CThe trust itself is the primary taxable entity, and the beneficiaries receive tax-exempt distributions.
DIncome of the trust is clubbed with the settlor's income, regardless of the trust type.
💡 The text under '15.6.12 Trust as a Pass-through entity' states: 'A private trust does not have a separate legal identity, and is essentially a pass-through entity...' It further clarifies: 'In a private trust, the receipts by the trust/trustee on behalf of the beneficiary are not taxable. What is taxable is the income of the beneficiary. The liability to pay the tax is on the trustee but in a representative capacity.'
Q3 MCQ · 1 mark EasyParties to Trust

In the context of a trust, who is responsible for managing the trust assets and holds the legal title of these assets, with their rights, duties, and obligations set forth in the trust agreement?

AThe Settlor
BThe Beneficiary
✓The Trustee
DThe Legal Representative
💡 The text states, 'Trustee: The person in charge of managing the trust... The trustee has legal title of the trust assets and the power to buy, sell, borrow against or transfer the trust assets. The trust agreement sets forth the rights, duties and obligations of the trustee.'
Q4 MCQ · 1 mark HardTrust Perpetuities

According to Indian law regarding trust perpetuities, which of the following statements is INCORRECT?

AA transfer of property cannot operate to create an interest that takes effect after the lifetime of a person living at the date of transfer and the minority (18 years) of a person coming into existence at that period's expiration.
BThe rule against perpetuity has an exception for transfers of property made for the benefit of the public in advancement of religion, knowledge, or health.
✓Accumulation of income from property is generally not allowed for a period longer than the lifetime of the transferor or 18 years from the date of transfer, whichever is earlier.
DIf a Will directs income accumulation for a period longer than 18 years from the testator's death, the direction is void to the extent it exceeds this period.
💡 Statement C is incorrect. The text specifies: 'Further, subject to the exceptions prescribed under statute, the accumulation (either wholly or partly) of any income from property is not allowed for a period longer than the lifetime of the transferor or 18 years from the date of transfer (whichever is later).' Option C incorrectly states 'whichever is earlier'. Options A, B, and D are all directly supported by the text.
Q5 MCQ · 1 mark EasyParties to Trust

In the context of a trust, who is responsible for the management of the trust assets and holds the legal title to those assets?

AThe Author or Settlor of the Trust
BThe Beneficiary
✓The Trustee
DThe Primary Beneficiary
💡 As per '15.6.6 Parties to Trust', point 2 (Trustee) states: 'The trustee is responsible for the management of the trust assets. The trustee has legal title of the trust assets and the power to buy, sell, borrow against or transfer the trust assets.'
Q6 MCQ · 1 mark EasyParties to a Trust

According to Section 3 of the Indian Trust Act, 1882, the person who reposes or declares a confidence in another person (trustee) in some property for the benefits of a beneficiary is called the:

ABeneficiary
BTrustee
✓Author or Settlor
DExecutor
💡 The text explicitly states: 'As per section 3 of the Indian Trust Act, 1882, the person who reposes or declares a confidence in another person (trustee) in some property for the benefits of beneficiary is called the “author” or “settlor” of the trust.'
Q7 MCQ · 1 mark HardTrust Perpetuities

As per Indian law on Trust Perpetuities, excluding transfers for the benefit of the public, what is the maximum period for which the accumulation of income from property is allowed?

AThe lifetime of the transferor OR 18 years from the date of transfer, whichever is earlier.
BThe lifetime of a person living at the date of such transfer, AND the minority (18 years) of a person who comes into existence at the expiration of that period.
✓The lifetime of the transferor OR 18 years from the date of transfer, whichever is later.
DA maximum of 21 years from the date of creation of the trust, regardless of the transferor's lifetime.
💡 The text states under 15.6.11 Trust Perpetuities: "Further, subject to the exceptions prescribed under statute, the accumulation (either wholly or partly) of any income from property is not allowed for a period longer than the lifetime of the transferor or 18 years from the date of transfer (whichever is later)."
Q8 MCQ · 1 mark MediumTaxation of Business Income of Trust

According to Section 161-1(A) of the Income Tax Act, under what conditions will the business income of a trust NOT be taxed at the maximum marginal rate (MMR)?

✓When the profits and gains are receivable under a trust declared by Will, exclusively for the benefit of any relative dependent on the settlor, and it is the only trust so declared by Will.
BWhen the trust is a Private Discretionary Trust, irrespective of the nature of its income.
CIf the income is from a revocable transfer of an asset, and the transferor derives no direct or indirect benefit.
DWhen the trust is a Public Charitable Trust, as they are exempt from income tax.
💡 Section 15.6.9, under 'Assessment of Business Income of Trust,' specifies an exemption to charging business income at the maximum marginal rate if three conditions are met: (1) profits from a Will-declared trust, (2) exclusively for a dependent relative, and (3) it's the only such trust declared by Will. In this scenario, it will be taxed at the income tax slab rate instead of MMR.
Q9 MCQ · 1 mark MediumTrust Perpetuities

According to Indian law regarding trust perpetuities, the accumulation of any income from property is generally not allowed for a period longer than which of the following?

AThe lifetime of the beneficiary or 21 years from the date of transfer, whichever is earlier.
✓The lifetime of the transferor or 18 years from the date of transfer, whichever is later.
CThe lifetime of the primary beneficiary or the minority of the residual beneficiary, whichever is shorter.
D25 years from the date of creation of the trust, irrespective of the transferor's lifetime.
💡 As stated in Section 15.6.11, the accumulation of any income from property is not allowed for a period longer than 'the lifetime of the transferor or 18 years from the date of transfer (whichever is later)'.
Q10 MCQ · 1 mark EasyTypes of Private Trusts

In which type of private trust do the trustees have discretion over the distribution of income, and the beneficiaries' income is not defined or determinate?

APrivate Specific Trust
BPublic Charitable Trust
✓Private Discretionary Trust
DPublic cum Private Trust
💡 Section 15.6.4 states, 'Private Discretionary Trust, where trustees have discretion and beneficiaries income is not defined or determinate.'
Q11 MCQ · 1 mark MediumFamily Trust vs. Will

Which of the following is a key difference between a Family Trust and a Will as estate planning tools, according to the provided text?

AA Will becomes effective as soon as it is created, while a trust goes into effect only when one dies.
BA trust typically passes through a probate process, ensuring court oversight, whereas a Will does not.
CA Will covers properties that are transferred to the trust, while a trust covers property that is in one’s name at death.
✓A Family Trust remains private, whereas a Will may become a public record.
💡 The text states: 'A Will can become a public record, while family trust remains private.' Other options are incorrect: A Will goes into effect at death, a trust upon creation. A Will passes through probate, a trust does not. A Will covers property in one’s name at death, a trust covers properties transferred to it.
Q12 MCQ · 1 mark HardTrust Perpetuities

As per Indian law regarding trust perpetuities, what is the maximum period for which the accumulation of income from property is generally allowed, subject to exceptions?

AThe lifetime of the transferor or 18 years from the date of transfer, whichever is earlier.
✓The lifetime of the transferor or 18 years from the date of transfer, whichever is later.
CThe lifetime of the primary beneficiary or 21 years from the date of creation, whichever is later.
DIndefinitely, as long as the trust serves a public charitable purpose.
💡 Section 15.6.11 states, 'Further, subject to the exceptions prescribed under statute, the accumulation (either wholly or partly) of any income from property is not allowed for a period longer than the lifetime of the transferor or 18 years from the date of transfer (whichever is later).'
Q13 MCQ · 1 mark EasyFamily Trust vs. Will

Which of the following statements correctly differentiates a Will from a Family Trust?

AA Will becomes effective as soon as it is created, whereas a trust goes into effect only when one dies.
BA Will covers properties transferred to the trust, whereas a trust covers property that is in one’s name when one dies.
✓A Will may pass through probate, which means the court oversees its administration, whereas a trust does not pass through a probate process.
DA Will allows for planning for disability or saving taxes, whereas a trust allows naming a guardian for minors.
💡 As per Section 15.6.5, a Will may pass through probate where the court oversees its administration, but a trust does not pass through probate. Option A reverses the effectiveness, Option B reverses the property coverage, and Option D reverses the functions (Will names guardian for minors, trust plans for disability/tax savings).
Q14 MCQ · 1 mark MediumTypes of Family Trusts

In the context of private trusts, which type grants trustees discretion over the distribution of income, where the beneficiaries' income is not defined or determinate?

APublic Charitable Trust
BPrivate Specific Trust
CPublic cum Private Trust
✓Private Discretionary Trust
💡 As per Section 15.6.4, a 'Private Discretionary Trust' is where trustees have discretion and beneficiaries' income is not defined or determinate. A 'Private Specific Trust' is where the share of the beneficiaries' income is determined in the trust deed. Public trusts are for the benefit of the public at large, and public cum private trusts have both public and private components.
Q15 MCQ · 1 mark EasyTypes of Trusts

Which of the following statements accurately describes a 'Private Discretionary Trust' based on the provided text?

AThe beneficiaries are defined and ascertained individuals, and their share of income is determined in the trust deed.
✓The trustees have discretion over the distribution of income, and the beneficiaries' income is not defined or determinate.
CIt is constituted wholly or partially for the benefit of the public at large, with permanent and indefinite character.
DA part of its income is applied for public purpose, and a part goes to private person or persons.
💡 According to the text, a 'Private Discretionary Trust' is where 'trustees have discretion and beneficiaries income is not defined or determinate'. Option A describes a Private Specific Trust. Option C describes a Public Trust. Option D describes a Public cum Private Trust.
Q16 MCQ · 1 mark MediumRevocation of Private Trust

Under which circumstance can a private trust be revoked by the beneficiaries, assuming they are competent to contract?

AWhen the trust's purpose has become unlawful, irrespective of beneficiary consent.
✓When the beneficiaries consent, believing the existing trust structure is no longer beneficial.
COnly if the settlor has reserved the power of revocation in a testamentary document.
DWhen the trust property is destroyed, making its purpose impossible to carry on.
💡 Section 15.6.8 states, 'If the beneficiaries are competent to contract and they have a consent that the existing structure of the trust is not beneficial any more, then with their consent a trust can be revoked.'
Q17 MCQ · 1 mark EasyFamily Trust vs. Will

Which of the following statements accurately describes a key difference between a Will and a Family Trust regarding their effective date?

AA Will becomes effective as soon as it is created, while a trust goes into effect only when the settlor dies.
✓A Will goes into effect only when the testator dies, while a trust is effective as soon as it is created.
CBoth a Will and a trust become effective only after the probate process is completed.
DA Will is effective only for distribution before death, whereas a trust is effective for distribution after death.
💡 The text states: "1. A Will goes into effect only when one dies while a trust is effective as soon as it is created."
Q18 MCQ · 1 mark EasyWill vs. Family Trust

Which of the following statements correctly highlights a key difference between a Will and a Family Trust as estate planning tools?

AA Will becomes effective as soon as it is created, while a trust goes into effect only when the settlor dies.
✓A Will typically passes through probate, whereas a Family Trust does not.
CA Will covers properties that are transferred to the trust, while a Family Trust covers property that is in one's name at death.
DA Will can be used to plan for disability, while a Family Trust allows naming a guardian for minors.
💡 According to the text, 'A Will may pass through probate which means the court overseas the administration of the Will... A trust does not pass through a probate, therefore, no court overseas the trust.' Other options present the opposite of what is stated in the text.
Q19 MCQ · 1 mark MediumParties to Trust

In the context of a private trust, which of the following statements about the parties involved is correct?

AThe Author/Settlor and the Trustee can legally be the same person.
BThe Trustee and the Beneficiary can legally be the same person.
✓The Beneficiary and the Author/Settlor can legally be the same person.
DAll three parties – Author/Settlor, Trustee, and Beneficiary – must always be distinct individuals in a private trust.
💡 The text states under the 'Beneficiary' section: "In a private trust, the beneficiary and author may be the same person."
Q20 MCQ · 1 mark EasyParties to a Trust

According to Section 3 of the Indian Trust Act, 1882, which party to a trust accepts the confidence reposed by the author, is in charge of managing the trust, and holds legal title of the trust assets?

AThe Author of the Trust
BThe Settlor of the Trust
✓The Trustee
DThe Beneficiary
💡 As per Section 15.6.6, the 'Trustee' is the person who accepts the confidence reposed by the author, is in charge of managing the trust, and has legal title of the trust assets. The Author or Settlor creates the trust, and the Beneficiary receives the benefits.
Q21 MCQ · 1 mark EasyFamily Trust vs. Will

Which of the following statements accurately describes a key difference in effectiveness between a Will and a Family Trust?

✓A Will goes into effect only when one dies, while a trust is effective as soon as it is created.
BA Will is effective as soon as it is created, while a trust goes into effect only when one dies.
CBoth a Will and a trust are effective only after the testator's death.
DBoth a Will and a trust are effective as soon as they are created.
💡 According to the text under '15.6.5 Family Trust versus Will', point 1 states: 'A Will goes into effect only when one dies while a trust is effective as soon as it is created.'
Q22 MCQ · 1 mark HardTaxation of Business Income of Trust

According to Section 161-1(A) of the Income Tax Act, when does the business income of a trust, which ordinarily would be taxed at the maximum marginal rate (MMR), qualify for an exemption to be taxed at the income tax slab rate instead?

AWhen the profits and gains are receivable under a trust declared by any person, provided the trust has multiple beneficiaries.
BWhen such profits are exclusively for the benefit of any relative dependent on the settlor for support and maintenance, and the trust is declared by a non-testamentary document.
✓When the profits and gains are receivable under a trust declared by Will, exclusively for the benefit of a dependent relative, and it is the only such trust declared by that person through the Will.
DWhen the trust is a public charitable trust, and its business income does not exceed a specified threshold.
💡 The text explicitly states the conditions for this exemption: 'However, there is an exemption provided to charge this income at income tax slab rate instead of maximum marginal rate if following conditions are met: 1. The profits and gains are receivable under a trust which is declared by any person by Will; 2. Such profits are exclusively for the benefit of any relative dependent on him for support and maintenance; and 3. Such trust is the only trust so declared by the person through the Will.'
Q23 MCQ · 1 mark EasyParties to a Trust

According to the Indian Trust Act, 1882, the person who accepts the confidence reposed by the author and is responsible for the management of the trust assets is known as the:

ASettlor
BBeneficiary
✓Trustee
DLegal Representative
💡 Section 15.6.6 defines 'Trustee' as 'a person who accepts the confidence reposed by the author, which gives rise to an obligation annexed to the ownership of the property. The trustee is responsible for the management of the trust assets.'
Q24 MCQ · 1 mark EasyParties to a Trust

As per Section 3 of the Indian Trust Act, 1882, which party to a trust is defined as the person who accepts the confidence reposed by the author, giving rise to an obligation annexed to the ownership of the property?

AThe Author of the Trust
BThe Settlor of the Trust
CThe Beneficiary
✓The Trustee
💡 The text states: 'As per Section 3 of the Indian Trust Act, a “trustee” is a person who accepts the confidence reposed by the author, which gives rise to an obligation annexed to the ownership of the property.' The author/settlor reposes the confidence, and the beneficiary receives the benefits.
Q25 MCQ · 1 mark MediumCancellation and Revocation of Private Trust

Which of the following is NOT listed as a situation under which a private trust can become extinct or be revoked, as per the provided text?

AThe trust's purpose has become unlawful.
BThe trust's purpose has been fulfilled.
✓The settlor unilaterally decides to dissolve the trust without any power reserved in the trust document.
DIt has become impossible to carry on its purpose due to the destruction of trust property.
💡 The text states a trust becomes extinct when its purpose has been fulfilled, it has become unlawful, or impossible to carry on due to destruction of trust property, or if it has been revoked. Revocation can occur 'at the pleasure of the testator/settlor' if 'there can be power reserved to the settlor for revocation of the trust.' Unilateral dissolution without such reserved power is not listed as a valid ground for extinction or revocation.
Q26 MCQ · 1 mark MediumTrust as a Pass-through entity

Which of the following statements accurately describes a private trust's status as a pass-through entity under income tax provisions?

AA private trust has a separate legal identity, and the income received by the trust is directly taxable to the trust itself.
✓The income of a private trust 'flows through' to the beneficiaries, meaning the receipts by the trust are taxable as the beneficiary's income, with the trustee paying tax in a representative capacity.
CA private trust is considered an obstruction to the flow of income to beneficiaries, ensuring privacy by preventing income from reaching them directly.
DThe primary purpose of a pass-through entity status for a private trust is to ensure the trust itself is always exempt from income tax, regardless of its structure.
💡 The text states: 'A private trust does not have a separate legal identity, and is essentially a pass-through entity... In a private trust, the receipts by the trust/trustee on behalf of the beneficiary are not taxable. What is taxable is the income of the beneficiary. The liability to pay the tax is on the trustee but in a representative capacity. So under income tax provisions, the trust has been given the pass through status by the nature of tax liability.'
Q27 MCQ · 1 mark MediumTypes of Private Trusts

In the context of private trusts, what is the primary characteristic that differentiates a Private Specific Trust from a Private Discretionary Trust?

AIn a Private Specific Trust, the beneficiaries are undefined, whereas in a Private Discretionary Trust, they are defined individuals.
✓In a Private Specific Trust, the share of the beneficiaries' income is determined in the trust deed, while in a Private Discretionary Trust, trustees have discretion over income distribution.
CA Private Specific Trust is governed by the Indian Trust Act, 1882 and state acts, while a Private Discretionary Trust is governed only by the Indian Trust Act, 1882.
DA Private Specific Trust is permanent and indefinite in character, whereas a Private Discretionary Trust has a defined term.
💡 The text specifies: 'Private Discretionary Trust, where trustees have discretion and beneficiaries income is not defined or determinate.' and 'Private Specific Trust, where the share of the beneficiaries income is determined in the trust deed.'
Q28 MCQ · 1 mark MediumTrust Taxation

Under the Income Tax Act, when does the provision of Section 61 (income from revocable transfer of asset taxed in hands of transferor) NOT apply to a revocable trust?

AWhen the trust is created specifically for the benefit of a minor child with disability specified under Section 80U.
✓When the trust is not revocable during the lifetime of the beneficiary AND the transferor derives no direct or indirect benefit from such income.
CWhen the trust is declared by a Will exclusively for the benefit of a relative dependent on the transferor for support and maintenance.
DWhen the trust is a public charitable trust providing services to the nation, hence fully exempt from income tax.
💡 The text states under 'Taxation of Revocable Trust': 'However, provision of section 61 would not apply where the trust is not revocable during the lifetime of the beneficiary and where the transferor derives no direct or indirect benefit from such income. (Section 62)'. Option A relates to clubbing of minor income, and Option C to business income exemptions. Option D is a general statement about public trusts.
Q29 MCQ · 1 mark MediumTypes of Family Trust

Which type of private trust is characterized by the trustees having discretion over income distribution, and where the beneficiaries' income is not defined or determinate in the trust deed?

APrivate Specific Trust
BPublic Charitable Trust
✓Private Discretionary Trust
DPublic cum Private Trust
💡 The text states under 'The private trusts are also of 2 types – 1. Private Discretionary Trust, where trustees have discretion and beneficiaries income is not defined or determinate. 2. Private Specific Trust, where the share of the beneficiaries income is determined in the trust deed.'
Q30 MCQ · 1 mark MediumBusiness Income of Trust Taxation

According to Section 161-1(A) of the Income Tax Act, business income of a trust is generally taxed at the maximum marginal rate (MMR). However, under which specific set of conditions can this income be charged at the income tax slab rate instead of MMR?

AIf the profits and gains are receivable under a trust declared by Will, AND such profits are exclusively for the benefit of any relative dependent on the settlor for support and maintenance.
✓If the profits and gains are receivable under a trust which is declared by any person by Will, AND such profits are exclusively for the benefit of any relative dependent on him for support and maintenance, AND such trust is the only trust so declared by the person through the Will.
CIf the profits and gains are exclusively for the benefit of public charitable purposes, regardless of how the trust was declared.
DIf the trust is a private discretionary trust where the trustees have full discretion over income distribution.
💡 The text states: "However, there is an exemption provided to charge this income at income tax slab rate instead of maximum marginal rate if following conditions are met: 1. The profits and gains are receivable under a trust which is declared by any person by Will; 2. Such profits are exclusively for the benefit of any relative dependent on him for support and maintenance; and 3. Such trust is the only trust so declared by the person through the Will." All three conditions must be met for the exemption.
Q31 MCQ · 1 mark MediumRevocation of Private Trust

Which of the following conditions would allow for the revocation of a private trust?

AThe trust property is partially damaged, making the purpose difficult to carry on.
BThe settlor decides unilaterally to revoke the trust, even if no power was reserved in a non-testamentary document.
✓All beneficiaries, being competent to contract, provide their consent that the existing trust structure is no longer beneficial.
DThe trust was created for the general welfare of the public at large.
💡 The text lists conditions for revocation, including: 'If the beneficiaries are competent to contract and they have a consent that the existing structure of the trust is not beneficial any more, then with their consent a trust can be revoked.' Option A describes a trust becoming 'extinct' due to impossibility, not revocation. Option B contradicts the requirement of reserved power for non-testamentary documents. Option D refers to a public trust, not a private trust.
Q32 MCQ · 1 mark HardTaxation of Revocable Trust

According to the Income Tax Act, under which of the following circumstances would income arising from a revocable transfer of an asset *not* be taxed in the hands of the transferor?

AThe trust is revocable during the lifetime of the beneficiary.
BThe transferor derives a direct benefit from such income.
✓The trust is not revocable during the lifetime of the beneficiary, and the transferor derives no direct or indirect benefit from such income.
DThe trust is created by a non-testamentary document with power reserved to the settlor for revocation.
💡 The text states: 'However, provision of section 61 would not apply where the trust is not revocable during the lifetime of the beneficiary and where the transferor derives no direct or indirect benefit from such income. (Section 62)'. Options A and B describe scenarios where Section 61 *would* apply, taxing the transferor. Option D describes a condition for revoking a trust, not an exemption from the tax rule for revocable transfers.
Q33 MCQ · 1 mark MediumFamily Trust vs. Will

Which of the following statements accurately highlights a key difference between a Will and a Family Trust?

AA Will becomes effective as soon as it is created, whereas a trust only goes into effect upon the death of the creator.
BA Family Trust typically passes through a probate process, ensuring court oversight, while a Will does not.
CA Will can be used to plan for disability or for saving taxes, whereas a trust primarily allows for naming a guardian for minors.
✓A Family Trust remains private, while a Will may become a public record.
💡 The text explicitly states: 'A Will can become a public record, while family trust remains private.' Other options contradict the information provided in section 15.6.5.
Q34 MCQ · 1 mark EasyFamily Trust vs. Will

Which of the following statements correctly highlights a key difference between a Will and a Family Trust?

AA Will becomes effective immediately upon creation, whereas a Family Trust becomes effective only upon the death of the testator.
BA Will typically covers property transferred to it, while a Family Trust covers property in one’s name at the time of death.
✓A Will generally passes through a probate process, making it a public record, while a Family Trust typically avoids probate and remains private.
DA Will can be used to plan for disability, whereas a Family Trust is primarily used for naming a guardian for minors.
💡 As per the text, 'A Will may pass through probate which means the court overseas the administration of the Will and ensures the Will is valid and property gets distributed as desired by the deceased. A trust does not pass through a probate, therefore, no court overseas the trust. A Will can become a public record, while family trust remains private.' Also, 'A Will allows naming a guardian for minors, while a trust can be used to plan for disability or for saving taxes.' Options A, B, and D present incorrect or reversed comparisons.
Q35 MCQ · 1 mark MediumRevocation of Private Trust

Under what circumstances can a private trust be revoked, even if the Indian Trust Act does not explicitly provide for its dissolution?

✓If the trust's purpose has become impossible to carry on due to the destruction of trust property.
BIf the settlor decides to revoke it at any time, irrespective of other conditions.
CIf the trust was specifically created by a testamentary document without a reserved power for revocation.
DIf the beneficiaries are minors and their guardian consents to the revocation.
💡 The text states that a trust 'becomes extinct when its purpose has been fuilfilled or it has become unalwful or it has become impossible to carry on its purpose due to the destruction of trust property or lastly if it has been revoked.' This is a condition for the trust to become extinct, which also means dissolution/revocation. Option B is too broad. Option C refers to non-testamentary documents and reserved power. Option D requires beneficiaries to be 'competent to contract'.
Q36 MCQ · 1 mark HardTaxation of Trust Income

Under Section 161-1(A) of the Income Tax Act, a trust's business income is generally taxed at the maximum marginal rate (MMR). Which of the following is a condition that must be met for this income to be taxed at the income tax slab rate instead of MMR?

AThe trust must be a Public Charitable Trust registered under Section 12AA.
BThe profits are for the general public benefit, not exclusively for a specific relative.
✓The trust is the only trust so declared by the person through the Will.
DThe settlor must retain the right to amend, alter, or revoke the trust.
💡 As per Section 15.6.9, for business income of a trust to be taxed at the income tax slab rate instead of MMR, three conditions must be met: 1. Profits are receivable under a trust declared by Will; 2. Profits are exclusively for the benefit of a dependent relative; and 3. The trust is the *only* trust so declared by the person through the Will. Option A and B describe public trust characteristics or contradict the requirement for dependent relatives. Option D relates to revocable trusts, not the specific conditions for business income under 161-1(A).
Q37 MCQ · 1 mark HardTaxation of Business Income of Trust

Under Section 161-1(A) of the Income Tax Act, when is the business income of a trust *not* taxed at the maximum marginal rate (MMR)?

AWhen the profits and gains are exclusively for the benefit of any relative, irrespective of how the trust was declared.
BWhen the trust's income includes profits from a business, but the trust is for a public charitable purpose.
✓When the profits and gains are receivable under a trust declared by a Will, exclusively for the benefit of a dependent relative, and it is the only trust so declared by that person through the Will.
DWhen the trustee has discretion over the distribution of business profits to the beneficiaries.
💡 The text states an exemption to the MMR for business income if '1. The profits and gains are receivable under a trust which is declared by any person by Will; 2. Such profits are exclusively for the benefit of any relative dependent on him for support and maintenance; and 3. Such trust is the only trust so declared by the person through the Will.'
Q38 MCQ · 1 mark EasyTypes of Private Trust

In a Private Specific Trust, which characteristic is true regarding the beneficiaries' income?

AThe trustees have complete discretion over the beneficiaries' income.
BThe beneficiaries' income is not defined or determinate.
✓The share of the beneficiaries' income is determined in the trust deed.
DThe trust income is primarily for public charitable purposes.
💡 As per the text, a 'Private Specific Trust' is one 'where the share of the beneficiaries income is determined in the trust deed.'
Q39 MCQ · 1 mark MediumTypes of Trusts and Taxation

Which type of private trust is generally chargeable to income tax at the Maximum Marginal Rate (MMR), subject to certain exemptions?

APrivate Specific Trust
BDeterminate Trust
✓Private Discretionary Trust
DPublic Charitable Trust
💡 The section 'Taxation of Discretionary Trust' explicitly states: 'Discretionary trust is chargeable to income tax at the maximum marginal rate (MMR), with some exemptions available.' Determinate trusts, including Private Specific Trusts, are generally taxed on the representative assessee under Section 161(1) and not necessarily at MMR for all income. Public Charitable Trusts receive various exemptions under Chapter III of the Income Tax Act.
Q40 MCQ · 1 mark EasyDeterminate Trust Taxation

Under a determinate trust structure, who is primarily liable to pay tax in respect of any income received or entitled to be received on behalf of a beneficiary, according to Section 161(1) of The Income Tax Act?

AThe Settlor
BThe Beneficiary directly
✓The Trustee, as a representative assessee
DThe Court overseeing the trust
💡 The text states: "Under determinate trust structure, the tax is levied on the representative assesses in accordance with the provision of Section 161 (1) of The Income Tax Act. The section imposes the liability to pay tax on the trustees, in respect of any income that he receives or is entitled to receive on behalf or for the benefit of any beneficiary under a trust."

Case-Based Questions (1 sets)

Case 1 Case-Based · 2 marks each Family Trust vs. Will and Trust Taxation
Mr. Anand Sharma, a 65-year-old successful entrepreneur, is planning his estate. His family includes his 62-year-old wife, Mrs. Leena Sharma, his 35-year-old son, Rohan, and his 30-year-old daughter, Siya. Siya has a 5-year-old son, Aryan, who is a minor. Mr. Sharma's assets include a residential property valued at ₹10 crores, a commercial property generating ₹20 lakhs annual rental income, a diversified portfolio of listed equities and mutual funds worth ₹15 crores, and a significant stake in his private manufacturing company. Mr. Sharma has several objectives for his estate plan: 1. He wants to ensure a smooth and private transfer of assets to his family members after his demise, avoiding lengthy legal processes. 2. He wishes to provide for his wife's financial security throughout her lifetime. 3. He wants to ensure that his grandson, Aryan, receives funds for his higher education when he turns 18, but the funds should be managed until then. 4. He is also concerned about protecting the assets meant for his children from any potential future business liabilities or creditors they might face. 5. Finally, he wants to maintain some level of control or influence over the assets during his lifetime, if possible, while still setting up the structure. He is evaluating different estate planning tools, particularly a Will and various types of Family Trusts, and seeks advice on how these tools align with his specific objectives, considering the tax implications and other legal aspects.
Hard Sub-question 1

Mr. Sharma is concerned about avoiding probate for his assets and ensuring the continuity of his private manufacturing business after his demise, while also considering the long-term viability of the trust structure. If he transfers his business assets into a private trust declared by his Will, which aims to distribute profits exclusively for the benefit of his dependent wife and children, what are the key advantages regarding probate and the specific tax treatment of the business income, and what is the maximum permissible duration for the accumulation of income within such a trust?

AThe trust bypasses probate, and the business income will be taxed at the Maximum Marginal Rate (MMR). The income accumulation period is restricted to the lifetime of the transferor or 18 years from the date of transfer, whichever is later.
BThe trust will pass through probate, but ensures business continuity. The business income will be taxed at the income tax slab rates. The accumulation period is restricted to 18 years from the death of the testator.
CThe trust bypasses probate, and the business income will be taxed at the income tax slab rates, provided specific conditions are met. The accumulation period is restricted to the lifetime of the transferor or 18 years from the date of transfer, whichever is later.
✓The trust bypasses probate, and the business income will be taxed at the income tax slab rates, provided specific conditions are met. The accumulation period is restricted to 18 years from the death of the testator.
💡 1. **Probate:** The text states, 'A trust does not pass through a probate, therefore, no court overseas the trust.' So, the trust bypasses probate. 2. **Taxation of Business Income:** Section 161-1(A) states that business income of a trust is generally taxed at MMR, but there is an exemption if 'The profits and gains are receivable under a trust which is declared by any person by Will,' 'Such profits are exclusively for the benefit of any relative dependent on him for support and maintenance,' and 'Such trust is the only trust so declared by the person through the Will.' Mr. Sharma's scenario (trust by Will, for dependent wife and children) fits these conditions, allowing the income to be taxed at income tax slab rates. 3. **Accumulation Period:** For a trust created by a Will, the text specifies, 'if the Will directs that income arising from property can be accumulated (wholly or in part) during a period longer than 18 years from the death of the testator, this direction will (subject to exceptions) be void to the extent that the period during which the accumulation is directed exceeds this period'. Thus, the accumulation period is restricted to 18 years from the death of the testator.
Medium Sub-question 2

Mr. Sharma wants to protect the assets meant for his children (Rohan and Siya) from potential future business liabilities or creditors. He also wishes to maintain some level of control or influence over the assets during his lifetime. Which trust structure would allow him to achieve asset protection from creditors for beneficiaries while potentially allowing for some settlor control, and what are the tax implications if he retains too much control?

✓An Irrevocable Discretionary Trust, which safeguards assets from creditors. If the settlor retains the right to amend, alter, or revoke the trust, the income might be clubbed with his income under Section 60/61.
BA Public Charitable Trust, as it protects assets from private creditors and allows settlor control. Income would be exempt under Section 11.
CA Revocable Specific Trust, which offers complete asset protection from creditors. Income would always be taxed in the hands of the transferor (settlor) under Section 60/61.
DA Hybrid Trust, where the specific portion protects assets, and the discretionary portion allows control. Tax would be split based on the nature of income.
💡 The text states, 'A settlor may set up an irrevocable discretionary trust in order to safeguard the assets amongst the claim of the creditors of the stocks and/or the beneficiaries'. This addresses the asset protection for beneficiaries. Regarding settlor control, 'In a living trust, the settlor retains the right to amend, alter or revoke the trust.' However, if the settlor retains such control, making the transfer revocable, then as per Sections 60 and 61 of the Income Tax Act, 'the income so transferred would be taxable in the hands of the transferor only.' Option C is incorrect as a revocable trust might not offer 'complete' asset protection from creditors of the beneficiary if the settlor can revoke it and reclaim assets. Option B is for public purpose, not private family. Option D is a mix, but A directly addresses the core requirements and tax implications of control.
Easy Sub-question 3

If Mr. Sharma decides to establish a private family trust, he will be the 'Author' or 'Settlor'. Who would typically be responsible for the management of the trust assets, accepting the confidence reposed by Mr. Sharma?

AThe Beneficiary
BThe Primary Beneficiary
✓The Trustee
DThe Residual Beneficiary
💡 According to Section 3 of the Indian Trust Act, a 'trustee' is a person who accepts the confidence reposed by the author and is responsible for the management of the trust assets.
Medium Sub-question 4

To fulfill his objective of providing for his minor grandson Aryan's higher education when he turns 18, with the funds managed until then, Mr. Sharma is considering setting up a trust. He wants to ensure Aryan's share is clearly defined. Which type of private trust would be most suitable for this specific objective, and how would its income generally be assessed for tax purposes under normal circumstances?

AA Private Discretionary Trust; income would be assessed at the Maximum Marginal Rate (MMR).
BA Public Charitable Trust; income would be exempt from tax under Section 11.
✓A Private Specific Trust; income would be assessed on the trustee in a representative capacity at the income tax slab rates applicable to the beneficiary.
DA Hybrid Trust; the discretionary part would be taxed at MMR, and the specific part at slab rates.
💡 For a clearly defined share for a beneficiary, a Private Specific Trust (which is a determinate trust) is suitable. As per the text, in a Private Specific Trust, 'the share of the beneficiaries income is determined in the trust deed'. For determinate trusts, 'the tax is levied on the representative assesses in accordance with the provision of Section 161 (1) of The Income Tax Act' which means the trustee pays tax on behalf of the beneficiary as if the income was that of the beneficiary, generally at the income tax slab rates applicable to the beneficiary. Option B is incorrect as it's a private purpose. Option A is incorrect as discretionary trusts have undefined income and are typically taxed at MMR. Option D is a mix, but C is more precise for the 'specific' nature and tax assessment.
Easy Sub-question 5

Mr. Sharma is exploring the fundamental difference between a Will and a Family Trust regarding their effective date. Which of the following statements correctly highlights this difference?

AA Will becomes effective immediately upon creation, while a Trust goes into effect only when the settlor dies.
BBoth a Will and a Trust become effective only upon the death of the creator.
✓A Will goes into effect only when the testator dies, whereas a Trust is effective as soon as it is created.
DA Will requires court approval to become effective, while a Trust does not.
💡 As per the chapter text, 'A Will goes into effect only when one dies while a trust is effective as soon as it is created.'
About this content: These practice questions are based on the NISM-Series-X-B: Investment Adviser (Level 2) Certification Examination Workbook published by the National Institute of Securities Markets (NISM), Mumbai. NISM is a SEBI-established institution. Questions cover Tools for Estate Planning with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI. Last updated: .

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