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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Tools for Estate Planning

Mr. Iyer, a Hindu undivided family member, has a revocable living trust arrangement in mind for his assets. He is the settlor and also the sole trustee and beneficiary during his life, with his two children as beneficiaries after death. Which statement is correct about this arrangement?

In a revocable trust the settlor keeps control and may revoke it, so the assets remain effectively his during life, and income is taxed in his hands. After death the trust deed governs distribution to the children. The arrangement is valid because other beneficiaries exist.

  1. ABecause the settlor can revoke it, the assets continue to be treated as his for tax and control purposes during his life, while the trust ensures a smooth transfer after death without probate-type delaysCorrect
  2. BThe trust becomes irrevocable immediately on creation
  3. CThe children become absolute owners on the date of creation
  4. DThe trust is void as the settlor, trustee and beneficiary cannot be the same person

Explanation

In a revocable trust the settlor retains control and can revoke it, so income and assets remain effectively his during life. On death, the trust terms govern distribution to beneficiaries, avoiding dependence on succession proceedings. The children do not become owners at creation. Under the Indian Trusts Act, a sole trustee being also a sole beneficiary raises merger issues, but here the children are also beneficiaries, so the trust stays valid.

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