Final answer:
When the principal of a private-purpose trust fund is nonexpendable, a permanent fund is established, implying that the trust becomes irrevocable and the capital is preserved to generate income.
Step-by-step explanation:
When the principal of a private-purpose trust fund is nonexpendable, a permanent fund has been created. A trust is a legal entity that functions as the family bank to transfer assets of an individual to heirs. In this context, a permanent fund refers to the portion of the trust where the principal amount is not meant to be spent but preserved, typically to generate income for a specific purpose. After the creator of the trust, or grantor, passes away, the trust generally becomes irrevocable, which means that it cannot be modified or terminated without the permission of the beneficiary. The trust's assets are then managed and distributed by the trustee(s) according to the grantor's instructions.