1
CANNON TRUST SCHOOL II EXAM ACTUAL QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026/2027 Q&A | INSTANT DOWNLOAD PDF
Core Domains:
• Advanced Trust Administration
• Fiduciary Law and Duties
• Trust Taxation (Income, Estate, Gift, GST)
• Investment Management and Prudent Investor Standards
• Estate Planning Strategies
• Retirement Plans and Distribution Mechanisms
• Estate and Gift Taxation
• Ethical and Regulatory Considerations
This comprehensive examination is designed to prepare candidates for the Cannon
Trust School II certification exam, a key step toward the CTFA™ designation. The
assessment encompasses all core domains tested on the official examination,
including advanced trust administration, fiduciary law and duties, trust taxation,
investment management, and estate planning strategies. Through a combination
of multiple-choice questions and scenario-based items, this practice exam mirrors
the structure and difficulty level of the actual 120-question, three-hour Cannon
Trust School II examination. Each question is accompanied by a verified correct
answer and a detailed rationale explaining the underlying legal and fiduciary
principles, reinforcing key concepts and promoting deeper understanding.
Successful completion demonstrates readiness for the Cannon Trust School II
certification and competence in advanced trust and wealth management.
SECTION ONE: QUESTIONS 1-100
pg. 1
,2
Question 1
H's will creates a QTIP marital trust for the benefit of his wife, W. The trust
provides that W will receive all of the trust income and will receive trust principal
for her health and support. W has a limited power of appointment over the trust.
Bank X is designated to serve as the sole trustee. At W's death, any income or
principal she received from the trust will be included in her gross estate. Which of
the following statements is correct regarding the QTIP trust?
A. The trust assets are not eligible for the marital deduction because W has only a
limited power of appointment
B. The trust assets are eligible for the marital deduction if the executor makes a
QTIP election
C. The trust assets are automatically included in H's gross estate
D. The trust must be funded with community property to qualify for QTIP
treatment
B. The trust assets are eligible for the marital deduction if the executor makes
a QTIP election
RATIONALE: A Qualified Terminable Interest Property (QTIP) trust allows the
grantor to provide for a surviving spouse while controlling the ultimate disposition
of the trust assets. The trust assets are eligible for the marital deduction if the
executor makes a QTIP election on the estate tax return. The election must be
made on a timely filed estate tax return. The QTIP trust requires that the surviving
spouse receive all of the trust income for life and that no person has the power to
appoint the trust assets to anyone other than the surviving spouse during the
spouse's lifetime. A limited power of appointment in the surviving spouse does
not disqualify the trust. The trust assets are included in the surviving spouse's
gross estate at death under IRC § 2044, which is consistent with the tax deferral
purpose of the QTIP election. Community property is not required for QTIP
treatment. The QTIP election is a critical estate planning tool for blended families
and for equalizing estates between spouses.
pg. 2
,3
Question 2
A client is looking to establish an irrevocable trust that provides income to his
spouse for life, then income to his children for life, with the remainder interest
passing to his grandchildren. This is an example of which type of trust?
A. Qualified Terminable Interest Property (QTIP) trust
B. Generation-Skipping Trust (GST)
C. Grantor Retained Annuity Trust (GRAT)
D. Irrevocable Life Insurance Trust (ILIT)
B. Generation-Skipping Trust (GST)
RATIONALE: This is a generation-skipping trust because the trust provides
income to the grantor's spouse (first generation), then income to the children
(second generation), with the remainder interest passing to the grandchildren
(third generation). When assets pass to a skip person (a person two or more
generations below the transferor), the generation-skipping transfer (GST) tax may
apply. The GST tax is imposed in addition to gift and estate taxes and is designed
to prevent the avoidance of estate and gift taxes through transfers that skip a
generation. The GST tax exemption for 2026 is $13.99 million per individual
($27.98 million for married couples). A QTIP trust provides for a surviving spouse
with a QTIP election. A GRAT is used to transfer appreciating assets to
beneficiaries with minimal gift tax. An ILIT owns life insurance policies to remove
the proceeds from the grantor's estate. Understanding GST trusts is essential for
estate planning with multiple generations.
Question 3
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees, one-half
from income and one-half from principal. What is the trust's distributable net
income (DNI) for the year?
A. $23,000
B. $25,000
C. $27,000
D. $29,000
pg. 3
, 4
B. $25,000
RATIONALE: Distributable net income (DNI) is the maximum amount of
income that can be taxed to the beneficiaries when distributed. DNI is calculated
by taking the trust's gross income ($27,000 in dividends) and subtracting expenses
that are properly allocated to income. Trustee fees that are allocated to income
are deductible in calculating DNI, while fees allocated to principal are not.
Therefore, DNI = $27,000 - ($4,000 × 50%) = $27,000 - $2,000 = $25,000. The
$2,000 of trustee fees allocated to principal does not reduce DNI. The trust's
taxable income may differ from DNI due to other deductions and adjustments.
Understanding DNI is critical for trust taxation and for determining the tax liability
of trust beneficiaries.
Question 4
The LOWEST S&P rating that would qualify as investment grade is which of the
following?
A. AA
B. A
C. BBB-
D. BB+
C. BBB-
RATIONALE: Standard & Poor's (S&P) credit ratings range from AAA (highest)
to D (default). Investment-grade bonds are those rated BBB- or higher. Bonds
rated BB+ or lower are considered non-investment grade (also known as "junk
bonds" or "high-yield bonds"). The S&P rating scale is: AAA, AA+, AA, AA-, A+, A,
A-, BBB+, BBB, BBB- (investment grade), then BB+, BB, BB-, B+, B, B-, CCC+, CCC,
CCC-, CC, C, and D (default). Fiduciaries managing trust assets must consider the
credit quality of fixed-income investments. Under the Prudent Investor Rule,
trustees must consider the risk and return objectives of the trust. Investment-
grade bonds are generally considered appropriate for trust portfolios, while non-
investment grade bonds may be appropriate only in limited circumstances.
pg. 4
CANNON TRUST SCHOOL II EXAM ACTUAL QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026/2027 Q&A | INSTANT DOWNLOAD PDF
Core Domains:
• Advanced Trust Administration
• Fiduciary Law and Duties
• Trust Taxation (Income, Estate, Gift, GST)
• Investment Management and Prudent Investor Standards
• Estate Planning Strategies
• Retirement Plans and Distribution Mechanisms
• Estate and Gift Taxation
• Ethical and Regulatory Considerations
This comprehensive examination is designed to prepare candidates for the Cannon
Trust School II certification exam, a key step toward the CTFA™ designation. The
assessment encompasses all core domains tested on the official examination,
including advanced trust administration, fiduciary law and duties, trust taxation,
investment management, and estate planning strategies. Through a combination
of multiple-choice questions and scenario-based items, this practice exam mirrors
the structure and difficulty level of the actual 120-question, three-hour Cannon
Trust School II examination. Each question is accompanied by a verified correct
answer and a detailed rationale explaining the underlying legal and fiduciary
principles, reinforcing key concepts and promoting deeper understanding.
Successful completion demonstrates readiness for the Cannon Trust School II
certification and competence in advanced trust and wealth management.
SECTION ONE: QUESTIONS 1-100
pg. 1
,2
Question 1
H's will creates a QTIP marital trust for the benefit of his wife, W. The trust
provides that W will receive all of the trust income and will receive trust principal
for her health and support. W has a limited power of appointment over the trust.
Bank X is designated to serve as the sole trustee. At W's death, any income or
principal she received from the trust will be included in her gross estate. Which of
the following statements is correct regarding the QTIP trust?
A. The trust assets are not eligible for the marital deduction because W has only a
limited power of appointment
B. The trust assets are eligible for the marital deduction if the executor makes a
QTIP election
C. The trust assets are automatically included in H's gross estate
D. The trust must be funded with community property to qualify for QTIP
treatment
B. The trust assets are eligible for the marital deduction if the executor makes
a QTIP election
RATIONALE: A Qualified Terminable Interest Property (QTIP) trust allows the
grantor to provide for a surviving spouse while controlling the ultimate disposition
of the trust assets. The trust assets are eligible for the marital deduction if the
executor makes a QTIP election on the estate tax return. The election must be
made on a timely filed estate tax return. The QTIP trust requires that the surviving
spouse receive all of the trust income for life and that no person has the power to
appoint the trust assets to anyone other than the surviving spouse during the
spouse's lifetime. A limited power of appointment in the surviving spouse does
not disqualify the trust. The trust assets are included in the surviving spouse's
gross estate at death under IRC § 2044, which is consistent with the tax deferral
purpose of the QTIP election. Community property is not required for QTIP
treatment. The QTIP election is a critical estate planning tool for blended families
and for equalizing estates between spouses.
pg. 2
,3
Question 2
A client is looking to establish an irrevocable trust that provides income to his
spouse for life, then income to his children for life, with the remainder interest
passing to his grandchildren. This is an example of which type of trust?
A. Qualified Terminable Interest Property (QTIP) trust
B. Generation-Skipping Trust (GST)
C. Grantor Retained Annuity Trust (GRAT)
D. Irrevocable Life Insurance Trust (ILIT)
B. Generation-Skipping Trust (GST)
RATIONALE: This is a generation-skipping trust because the trust provides
income to the grantor's spouse (first generation), then income to the children
(second generation), with the remainder interest passing to the grandchildren
(third generation). When assets pass to a skip person (a person two or more
generations below the transferor), the generation-skipping transfer (GST) tax may
apply. The GST tax is imposed in addition to gift and estate taxes and is designed
to prevent the avoidance of estate and gift taxes through transfers that skip a
generation. The GST tax exemption for 2026 is $13.99 million per individual
($27.98 million for married couples). A QTIP trust provides for a surviving spouse
with a QTIP election. A GRAT is used to transfer appreciating assets to
beneficiaries with minimal gift tax. An ILIT owns life insurance policies to remove
the proceeds from the grantor's estate. Understanding GST trusts is essential for
estate planning with multiple generations.
Question 3
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees, one-half
from income and one-half from principal. What is the trust's distributable net
income (DNI) for the year?
A. $23,000
B. $25,000
C. $27,000
D. $29,000
pg. 3
, 4
B. $25,000
RATIONALE: Distributable net income (DNI) is the maximum amount of
income that can be taxed to the beneficiaries when distributed. DNI is calculated
by taking the trust's gross income ($27,000 in dividends) and subtracting expenses
that are properly allocated to income. Trustee fees that are allocated to income
are deductible in calculating DNI, while fees allocated to principal are not.
Therefore, DNI = $27,000 - ($4,000 × 50%) = $27,000 - $2,000 = $25,000. The
$2,000 of trustee fees allocated to principal does not reduce DNI. The trust's
taxable income may differ from DNI due to other deductions and adjustments.
Understanding DNI is critical for trust taxation and for determining the tax liability
of trust beneficiaries.
Question 4
The LOWEST S&P rating that would qualify as investment grade is which of the
following?
A. AA
B. A
C. BBB-
D. BB+
C. BBB-
RATIONALE: Standard & Poor's (S&P) credit ratings range from AAA (highest)
to D (default). Investment-grade bonds are those rated BBB- or higher. Bonds
rated BB+ or lower are considered non-investment grade (also known as "junk
bonds" or "high-yield bonds"). The S&P rating scale is: AAA, AA+, AA, AA-, A+, A,
A-, BBB+, BBB, BBB- (investment grade), then BB+, BB, BB-, B+, B, B-, CCC+, CCC,
CCC-, CC, C, and D (default). Fiduciaries managing trust assets must consider the
credit quality of fixed-income investments. Under the Prudent Investor Rule,
trustees must consider the risk and return objectives of the trust. Investment-
grade bonds are generally considered appropriate for trust portfolios, while non-
investment grade bonds may be appropriate only in limited circumstances.
pg. 4
