CANNON FINANCIAL INSTITUTE
Trust School II Exam
Official Practice Exam -- 2026/2027 Edition
100 Questions 120 Minutes 80% Passing Score 5-Year Recertification
TABLE OF CONTENTS
Section 1: Advanced Trust Administration ...................... Questions 1-20 (20 questions)
Section 2: Fiduciary Law and Responsibilities ...................... Questions 21-40 (20 questions)
Section 3: Trust Taxation and Compliance ...................... Questions 41-60 (20 questions)
Section 4: Investment Management for Fiduciaries ...................... Questions 61-75 (15 questions)
Section 5: Estate Planning and Wealth Transfer ...................... Questions 76-90 (15 questions)
Section 6: Retirement Plans and Fiduciary Issues ...................... Questions 91-100 (10 questions)
Answer Key .......................... Final Page
EXAM INSTRUCTIONS
This practice exam contains 100 multiple-choice questions divided across six sections aligned with the
official Cannon Trust School II exam blueprint. You have 120 minutes to complete all questions.
Select the single best answer for each question. The passing score is 80% (80 of 100 questions correct).
Each question includes the correct answer (highlighted in green) and a rationale explaining the correct
choice and why the most common wrong answer is incorrect. Use these explanations to deepen your
understanding of the underlying concepts, not just to memorize answers.
Section 1 covers advanced trust administration including discretionary distributions, trust accounting,
and trust modifications. Section 2 addresses fiduciary law including duties of loyalty, prudence, and
impartiality. Section 3 focuses on trust taxation including DNI, grantor trusts, and income distribution.
Section 4 covers investment management under the prudent investor rule. Section 5 addresses estate
planning and wealth transfer techniques. Section 6 covers retirement plans and ERISA fiduciary issues.
Review all rationales carefully, even for questions you answered correctly, to ensure comprehensive
preparation for the actual exam. Good luck!
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 1 of 52
, Section 1: Advanced Trust Administration -- 2026/2027
Q1 Question 1 of 100
A 58-year-old trust officer reviews a discretionary trust established for the benefit of the settlor's three
adult children. The trust instrument authorizes the trustee to distribute income and principal for the
beneficiaries' health, education, maintenance, and support. The eldest beneficiary requests a $200,000
distribution to start a business venture. The trustee must evaluate this request under which standard?
A. The ascertainable standard of health, education, maintenance, and support as defined under
the Internal Revenue Code
B. The broad discretionary standard allowing any distribution that benefits the beneficiary financially
C. The prudent investor standard requiring the trustee to evaluate the investment potential of the
business
D. The fiduciary duty of loyalty requiring the trustee to treat all beneficiaries equally
Correct Answer: A
Rationale:
HEMS (health, education, maintenance, and support) is an ascertainable standard under IRC Section 2041 and
2514, meaning distributions must fall within these defined categories. Starting a business venture does not qualify
under HEMS, unlike health or education expenses. Broad discretion would apply only if the trust granted it beyond
ascertainable standards.
Q2 Question 2 of 100
A corporate trustee administers a revocable living trust for a 72-year-old settlor who has become
incapacitated. The trust becomes irrevocable upon the settlor's incapacity. The successor trustee
discovers that the settlor's spouse, who was named as the primary beneficiary, has been making
unauthorized withdrawals from the trust account using a power of attorney that was revoked when the
trust became irrevocable. What action should the trustee take first?
A. File a petition with the probate court to remove the spouse as beneficiary
B. Notify the spouse that the power of attorney is no longer valid and demand return of the
improperly withdrawn funds
C. Allow the withdrawals to continue since the spouse is the primary beneficiary
D. Resign as trustee to avoid conflict with the beneficiary
Correct Answer: B
Rationale:
The trustee's fiduciary duty requires protecting trust assets, and the spouse's power of attorney was revoked upon
the trust becoming irrevocable, making the withdrawals unauthorized. Simply filing a court petition without first
demanding return of funds delays recovery, allowing continued withdrawals breaches the trustee's duty, and
resigning abandons the obligation to protect the trust.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 2 of 52
,Q3 Question 3 of 100
A trustee of a charitable remainder unitrust (CRUT) is calculating the annual payout to the income
beneficiary for the current year. The trust assets were valued at $2,500,000 on January 1, and the trust
provides for a 6% unitrust payout. During the year, the trustee makes a $100,000 distribution to the
beneficiary in March. In November, the beneficiary requests an additional distribution. What is the
maximum additional distribution the trustee can authorize for this year?
A. $50,000, because the CRUT payout is fixed at 6% of the initial valuation and $100,000 has already
been distributed
B. $50,000, representing the remaining 6% unitrust amount after the March distribution
C. No additional distribution is permitted because CRUT distributions must be made in a single annual
payment
D. Any amount the trustee deems reasonable under the prudent distribution standard
Correct Answer: B
Rationale:
A CRUT requires a distribution equal to the fixed percentage (6%) of the annual valuation of trust assets, which
equals $150,000 for this year. Since $100,000 was already distributed, $50,000 remains to be paid. CRUTs do not
require a single annual payment, and the payout is a fixed percentage, not a discretionary standard.
Q4 Question 4 of 100
A trust officer at a bank administers a testamentary trust created under a will that was probated in
another state. The trust owns real property in both the domiciliary state and a second state. The trustee
receives a claim from a creditor of the estate seeking payment from trust assets. Under the Uniform
Trust Code, which law governs the validity of this creditor claim against the trust?
A. The law of the state where the real property is located governs all creditor claims
B. The law of the state designated in the trust instrument, or if none, the law of the state with the
most significant relationship to the trust
C. Federal bankruptcy law governs all creditor claims against testamentary trusts
D. The law of the domiciliary state where the will was probated governs all claims
Correct Answer: B
Rationale:
Under UTC Section 107, the law designated in the trust instrument governs, or if no designation exists, the law of
the state with the most significant relationship to the trust governs. Real property location matters for title issues but
not for general creditor claims against the trust, and federal bankruptcy law does not automatically govern trust
creditor claims.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 3 of 52
, Q5 Question 5 of 100
A 65-year-old client established an irrevocable life insurance trust (ILIT) eight years ago, funding it with
a $5 million life insurance policy on her life. She has been making annual contributions to cover
premium payments, and her attorney prepared Crummey notices each year. The client now wants to
borrow against the cash value of the policy to fund her grandchild's education. What is the primary tax
concern with this transaction?
A. The loan will be treated as a taxable gift from the trust to the client
B. The loan may cause the policy to be included in the client's gross estate under the incidents of
ownership rules if she retains control over the policy through the trust
C. The loan will trigger immediate income tax on the cash value exceeding basis
D. The loan will disqualify the trust from receiving the Crummey exclusion
Correct Answer: B
Rationale:
If the ILIT grants the client the ability to borrow against the policy or exercise incidents of ownership, the policy
proceeds may be included in her gross estate under IRC Sections 2042 and 2036. The loan itself is not a gift from
the trust to the client, there is no income tax on policy loans, and Crummey exclusions relate to contributions, not
loans.
Q6 Question 6 of 100
A trustee administers a spendthrift trust for a 35-year-old beneficiary who has significant gambling
debts. A creditor obtains a judgment against the beneficiary and serves a garnishment order on the
trustee demanding all current and future distributions. Under the majority view of spendthrift trust law,
what is the trustee's obligation?
A. Comply with the garnishment order and redirect all distributions to the creditor until the debt is satisfied
B. Honor the garnishment only for distributions that have already been authorized or made to the
beneficiary, but protect future discretionary distributions
C. Refuse to honor any garnishment because spendthrift provisions make the trust completely immune
from all creditor claims
D. Distribute all trust assets immediately to the beneficiary so the creditor can collect directly
Correct Answer: B
Rationale:
Under the majority rule, spendthrift provisions protect the beneficiary's interest in future discretionary distributions
from creditor claims, but once a distribution is made or the beneficiary has an absolute right to receive it, that
amount is no longer protected. Complete immunity from all claims at all stages is not the majority view, and
accelerating distributions to the beneficiary would defeat the spendthrift protection.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 4 of 52
Trust School II Exam
Official Practice Exam -- 2026/2027 Edition
100 Questions 120 Minutes 80% Passing Score 5-Year Recertification
TABLE OF CONTENTS
Section 1: Advanced Trust Administration ...................... Questions 1-20 (20 questions)
Section 2: Fiduciary Law and Responsibilities ...................... Questions 21-40 (20 questions)
Section 3: Trust Taxation and Compliance ...................... Questions 41-60 (20 questions)
Section 4: Investment Management for Fiduciaries ...................... Questions 61-75 (15 questions)
Section 5: Estate Planning and Wealth Transfer ...................... Questions 76-90 (15 questions)
Section 6: Retirement Plans and Fiduciary Issues ...................... Questions 91-100 (10 questions)
Answer Key .......................... Final Page
EXAM INSTRUCTIONS
This practice exam contains 100 multiple-choice questions divided across six sections aligned with the
official Cannon Trust School II exam blueprint. You have 120 minutes to complete all questions.
Select the single best answer for each question. The passing score is 80% (80 of 100 questions correct).
Each question includes the correct answer (highlighted in green) and a rationale explaining the correct
choice and why the most common wrong answer is incorrect. Use these explanations to deepen your
understanding of the underlying concepts, not just to memorize answers.
Section 1 covers advanced trust administration including discretionary distributions, trust accounting,
and trust modifications. Section 2 addresses fiduciary law including duties of loyalty, prudence, and
impartiality. Section 3 focuses on trust taxation including DNI, grantor trusts, and income distribution.
Section 4 covers investment management under the prudent investor rule. Section 5 addresses estate
planning and wealth transfer techniques. Section 6 covers retirement plans and ERISA fiduciary issues.
Review all rationales carefully, even for questions you answered correctly, to ensure comprehensive
preparation for the actual exam. Good luck!
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 1 of 52
, Section 1: Advanced Trust Administration -- 2026/2027
Q1 Question 1 of 100
A 58-year-old trust officer reviews a discretionary trust established for the benefit of the settlor's three
adult children. The trust instrument authorizes the trustee to distribute income and principal for the
beneficiaries' health, education, maintenance, and support. The eldest beneficiary requests a $200,000
distribution to start a business venture. The trustee must evaluate this request under which standard?
A. The ascertainable standard of health, education, maintenance, and support as defined under
the Internal Revenue Code
B. The broad discretionary standard allowing any distribution that benefits the beneficiary financially
C. The prudent investor standard requiring the trustee to evaluate the investment potential of the
business
D. The fiduciary duty of loyalty requiring the trustee to treat all beneficiaries equally
Correct Answer: A
Rationale:
HEMS (health, education, maintenance, and support) is an ascertainable standard under IRC Section 2041 and
2514, meaning distributions must fall within these defined categories. Starting a business venture does not qualify
under HEMS, unlike health or education expenses. Broad discretion would apply only if the trust granted it beyond
ascertainable standards.
Q2 Question 2 of 100
A corporate trustee administers a revocable living trust for a 72-year-old settlor who has become
incapacitated. The trust becomes irrevocable upon the settlor's incapacity. The successor trustee
discovers that the settlor's spouse, who was named as the primary beneficiary, has been making
unauthorized withdrawals from the trust account using a power of attorney that was revoked when the
trust became irrevocable. What action should the trustee take first?
A. File a petition with the probate court to remove the spouse as beneficiary
B. Notify the spouse that the power of attorney is no longer valid and demand return of the
improperly withdrawn funds
C. Allow the withdrawals to continue since the spouse is the primary beneficiary
D. Resign as trustee to avoid conflict with the beneficiary
Correct Answer: B
Rationale:
The trustee's fiduciary duty requires protecting trust assets, and the spouse's power of attorney was revoked upon
the trust becoming irrevocable, making the withdrawals unauthorized. Simply filing a court petition without first
demanding return of funds delays recovery, allowing continued withdrawals breaches the trustee's duty, and
resigning abandons the obligation to protect the trust.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 2 of 52
,Q3 Question 3 of 100
A trustee of a charitable remainder unitrust (CRUT) is calculating the annual payout to the income
beneficiary for the current year. The trust assets were valued at $2,500,000 on January 1, and the trust
provides for a 6% unitrust payout. During the year, the trustee makes a $100,000 distribution to the
beneficiary in March. In November, the beneficiary requests an additional distribution. What is the
maximum additional distribution the trustee can authorize for this year?
A. $50,000, because the CRUT payout is fixed at 6% of the initial valuation and $100,000 has already
been distributed
B. $50,000, representing the remaining 6% unitrust amount after the March distribution
C. No additional distribution is permitted because CRUT distributions must be made in a single annual
payment
D. Any amount the trustee deems reasonable under the prudent distribution standard
Correct Answer: B
Rationale:
A CRUT requires a distribution equal to the fixed percentage (6%) of the annual valuation of trust assets, which
equals $150,000 for this year. Since $100,000 was already distributed, $50,000 remains to be paid. CRUTs do not
require a single annual payment, and the payout is a fixed percentage, not a discretionary standard.
Q4 Question 4 of 100
A trust officer at a bank administers a testamentary trust created under a will that was probated in
another state. The trust owns real property in both the domiciliary state and a second state. The trustee
receives a claim from a creditor of the estate seeking payment from trust assets. Under the Uniform
Trust Code, which law governs the validity of this creditor claim against the trust?
A. The law of the state where the real property is located governs all creditor claims
B. The law of the state designated in the trust instrument, or if none, the law of the state with the
most significant relationship to the trust
C. Federal bankruptcy law governs all creditor claims against testamentary trusts
D. The law of the domiciliary state where the will was probated governs all claims
Correct Answer: B
Rationale:
Under UTC Section 107, the law designated in the trust instrument governs, or if no designation exists, the law of
the state with the most significant relationship to the trust governs. Real property location matters for title issues but
not for general creditor claims against the trust, and federal bankruptcy law does not automatically govern trust
creditor claims.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 3 of 52
, Q5 Question 5 of 100
A 65-year-old client established an irrevocable life insurance trust (ILIT) eight years ago, funding it with
a $5 million life insurance policy on her life. She has been making annual contributions to cover
premium payments, and her attorney prepared Crummey notices each year. The client now wants to
borrow against the cash value of the policy to fund her grandchild's education. What is the primary tax
concern with this transaction?
A. The loan will be treated as a taxable gift from the trust to the client
B. The loan may cause the policy to be included in the client's gross estate under the incidents of
ownership rules if she retains control over the policy through the trust
C. The loan will trigger immediate income tax on the cash value exceeding basis
D. The loan will disqualify the trust from receiving the Crummey exclusion
Correct Answer: B
Rationale:
If the ILIT grants the client the ability to borrow against the policy or exercise incidents of ownership, the policy
proceeds may be included in her gross estate under IRC Sections 2042 and 2036. The loan itself is not a gift from
the trust to the client, there is no income tax on policy loans, and Crummey exclusions relate to contributions, not
loans.
Q6 Question 6 of 100
A trustee administers a spendthrift trust for a 35-year-old beneficiary who has significant gambling
debts. A creditor obtains a judgment against the beneficiary and serves a garnishment order on the
trustee demanding all current and future distributions. Under the majority view of spendthrift trust law,
what is the trustee's obligation?
A. Comply with the garnishment order and redirect all distributions to the creditor until the debt is satisfied
B. Honor the garnishment only for distributions that have already been authorized or made to the
beneficiary, but protect future discretionary distributions
C. Refuse to honor any garnishment because spendthrift provisions make the trust completely immune
from all creditor claims
D. Distribute all trust assets immediately to the beneficiary so the creditor can collect directly
Correct Answer: B
Rationale:
Under the majority rule, spendthrift provisions protect the beneficiary's interest in future discretionary distributions
from creditor claims, but once a distribution is made or the beneficiary has an absolute right to receive it, that
amount is no longer protected. Complete immunity from all claims at all stages is not the majority view, and
accelerating distributions to the beneficiary would defeat the spendthrift protection.
Cannon Trust School II -- 2026/2027 | Passing Score: 80% | Page 4 of 52
