Cannon Financial Institute Trust School II Exam
Actual Exam 2026/2027 | Complete Exam-Style
Questions | 100% Verified – Detailed Rationales –
Pass Guaranteed – A+ Graded
SECTION 1: FIDUCIARY PRINCIPLES & TRUST ADMINISTRATION (9 Questions)
Q1. A newly appointed corporate trustee is reviewing the trust instrument for a discretionary trust
established in 2019. The document grants the trustee broad discretionary powers over distributions but
contains no specific guidance on investment standards. Under the Uniform Prudent Investor Act (UPIA),
which standard governs the trustee's investment decisions?
A. The trustee must invest solely in government-backed securities to minimize risk.
B. The trustee must follow the investment strategy of the trust's prior individual trustee, regardless of
current market conditions.
C. The trustee must act as a prudent investor would, considering the trust's purposes, distribution
requirements, and risk tolerance as a whole portfolio. [CORRECT]
D. The trustee must obtain beneficiary approval for every individual investment transaction.
Rationale: The best answer is C. The Uniform Prudent Investor Act requires trustees to evaluate
investments in the context of the entire portfolio and the trust's specific objectives, rather than judging
each asset in isolation. This means looking at the big picture—how the investments work together to
serve the beneficiaries' needs while managing risk appropriately. This aligns with current fiduciary
standards that emphasize modern portfolio theory over outdated "prudent man" rules.
Correct Answer: C
Q2. A trust officer discovers that a co-trustee has been making distributions to a beneficiary that exceed
the trust's annual income, using principal without proper documentation or beneficiary notification. The
trust instrument requires unanimous trustee consent for principal distributions. What is the priority
action for the trust officer?
A. Immediately remove the co-trustee from the trust without court involvement.
B. Document the distributions, notify the co-trustee in writing of the breach, and seek legal counsel to
,protect the trust and beneficiaries. [CORRECT]
C. Inform the beneficiary that the distributions were improper and demand repayment.
D. Do nothing, as the co-trustee's actions may have been well-intentioned.
Rationale: The best answer is B. When a co-trustee breaches fiduciary duties, the first step is always to
document the issue formally and seek legal guidance before taking unilateral action. Removing a trustee
typically requires court intervention, and confronting the beneficiary directly could create liability. The
priority is protecting the trust's integrity while following proper legal channels.
Correct Answer: B
Q3. Which of the following is a core fiduciary duty that cannot be delegated to a third party by a
trustee?
A. Investment selection and portfolio management
B. Tax return preparation and filing
C. The duty of loyalty to the beneficiaries [CORRECT]
D. Property appraisal and valuation
Rationale: The best answer is C. While trustees can delegate investment management, tax preparation,
and appraisals to qualified professionals, the duty of loyalty remains personal and non-delegable. A
trustee must always act in the best interests of the beneficiaries and cannot outsource that fundamental
responsibility. This is a bedrock principle of trust administration.
Correct Answer: C
Q4. A settlor establishes a revocable living trust and names herself as the initial trustee. She later
becomes incapacitated due to advanced dementia. The trust names a successor trustee (her adult son)
and includes a disability provision triggered by two physicians' written certifications. Which document
requires immediate attention to activate the successor trustee's authority?
A. The settlor's last will and testament
B. The physicians' written certifications of incapacity and the trust's disability clause [CORRECT]
C. A court order appointing a guardian for the settlor
D. The successor trustee's personal financial statement
Rationale: The best answer is B. A properly drafted revocable trust with a disability provision allows for
seamless transition of trustee authority without court intervention. The two physicians' certifications,
combined with the trust's specific language, trigger the successor trustee's powers. Waiting for a
guardianship proceeding would delay necessary trust administration and could harm the settlor's
financial interests.
, Correct Answer: B
Q5. A trust officer is reviewing a trust that was established 30 years ago. The trust language includes a
"spray" provision allowing the trustee to distribute income among multiple beneficiaries in varying
proportions. The trust officer is concerned that this language may create gift tax issues for the
beneficiaries. Which analysis is most accurate?
A. Spray provisions always create taxable gifts because beneficiaries have a general power of
appointment.
B. Spray provisions may create gift tax exposure if beneficiaries have the right to demand a share of the
trust income, creating a present interest. [CORRECT]
C. Spray provisions are never subject to gift tax because the trustee retains full discretion.
D. Spray provisions only trigger gift tax if the trust principal exceeds the federal estate tax exemption.
Rationale: The best answer is B. A spray provision can create gift tax complications if the beneficiaries
hold rights that convert future interests into present interests—such as a right to demand distributions.
If the trustee has absolute discretion and beneficiaries have no demand rights, gift tax exposure is
typically minimized. The key is examining the specific rights granted to beneficiaries under the trust
instrument.
Correct Answer: B
Q6. A trustee is administering a trust that holds significant real estate holdings. The trust instrument is
silent on the trustee's power to sell trust property. Under the Uniform Trust Code (UTC), which
statement best describes the trustee's authority?
A. The trustee has no power to sell real estate unless the trust instrument explicitly grants that
authority.
B. The trustee has the power to sell real estate unless the trust instrument specifically restricts that
power. [CORRECT]
C. The trustee must obtain unanimous consent from all beneficiaries before selling any real estate.
D. The trustee may only sell real estate if the sale is necessary to pay trust debts.
Rationale: The best answer is B. The Uniform Trust Code grants trustees broad default administrative
powers, including the power to sell trust property, unless the trust instrument specifically limits that
authority. This approach reflects modern trust administration principles that favor efficient
management while allowing settlors to restrict powers if they choose.
Correct Answer: B
Actual Exam 2026/2027 | Complete Exam-Style
Questions | 100% Verified – Detailed Rationales –
Pass Guaranteed – A+ Graded
SECTION 1: FIDUCIARY PRINCIPLES & TRUST ADMINISTRATION (9 Questions)
Q1. A newly appointed corporate trustee is reviewing the trust instrument for a discretionary trust
established in 2019. The document grants the trustee broad discretionary powers over distributions but
contains no specific guidance on investment standards. Under the Uniform Prudent Investor Act (UPIA),
which standard governs the trustee's investment decisions?
A. The trustee must invest solely in government-backed securities to minimize risk.
B. The trustee must follow the investment strategy of the trust's prior individual trustee, regardless of
current market conditions.
C. The trustee must act as a prudent investor would, considering the trust's purposes, distribution
requirements, and risk tolerance as a whole portfolio. [CORRECT]
D. The trustee must obtain beneficiary approval for every individual investment transaction.
Rationale: The best answer is C. The Uniform Prudent Investor Act requires trustees to evaluate
investments in the context of the entire portfolio and the trust's specific objectives, rather than judging
each asset in isolation. This means looking at the big picture—how the investments work together to
serve the beneficiaries' needs while managing risk appropriately. This aligns with current fiduciary
standards that emphasize modern portfolio theory over outdated "prudent man" rules.
Correct Answer: C
Q2. A trust officer discovers that a co-trustee has been making distributions to a beneficiary that exceed
the trust's annual income, using principal without proper documentation or beneficiary notification. The
trust instrument requires unanimous trustee consent for principal distributions. What is the priority
action for the trust officer?
A. Immediately remove the co-trustee from the trust without court involvement.
B. Document the distributions, notify the co-trustee in writing of the breach, and seek legal counsel to
,protect the trust and beneficiaries. [CORRECT]
C. Inform the beneficiary that the distributions were improper and demand repayment.
D. Do nothing, as the co-trustee's actions may have been well-intentioned.
Rationale: The best answer is B. When a co-trustee breaches fiduciary duties, the first step is always to
document the issue formally and seek legal guidance before taking unilateral action. Removing a trustee
typically requires court intervention, and confronting the beneficiary directly could create liability. The
priority is protecting the trust's integrity while following proper legal channels.
Correct Answer: B
Q3. Which of the following is a core fiduciary duty that cannot be delegated to a third party by a
trustee?
A. Investment selection and portfolio management
B. Tax return preparation and filing
C. The duty of loyalty to the beneficiaries [CORRECT]
D. Property appraisal and valuation
Rationale: The best answer is C. While trustees can delegate investment management, tax preparation,
and appraisals to qualified professionals, the duty of loyalty remains personal and non-delegable. A
trustee must always act in the best interests of the beneficiaries and cannot outsource that fundamental
responsibility. This is a bedrock principle of trust administration.
Correct Answer: C
Q4. A settlor establishes a revocable living trust and names herself as the initial trustee. She later
becomes incapacitated due to advanced dementia. The trust names a successor trustee (her adult son)
and includes a disability provision triggered by two physicians' written certifications. Which document
requires immediate attention to activate the successor trustee's authority?
A. The settlor's last will and testament
B. The physicians' written certifications of incapacity and the trust's disability clause [CORRECT]
C. A court order appointing a guardian for the settlor
D. The successor trustee's personal financial statement
Rationale: The best answer is B. A properly drafted revocable trust with a disability provision allows for
seamless transition of trustee authority without court intervention. The two physicians' certifications,
combined with the trust's specific language, trigger the successor trustee's powers. Waiting for a
guardianship proceeding would delay necessary trust administration and could harm the settlor's
financial interests.
, Correct Answer: B
Q5. A trust officer is reviewing a trust that was established 30 years ago. The trust language includes a
"spray" provision allowing the trustee to distribute income among multiple beneficiaries in varying
proportions. The trust officer is concerned that this language may create gift tax issues for the
beneficiaries. Which analysis is most accurate?
A. Spray provisions always create taxable gifts because beneficiaries have a general power of
appointment.
B. Spray provisions may create gift tax exposure if beneficiaries have the right to demand a share of the
trust income, creating a present interest. [CORRECT]
C. Spray provisions are never subject to gift tax because the trustee retains full discretion.
D. Spray provisions only trigger gift tax if the trust principal exceeds the federal estate tax exemption.
Rationale: The best answer is B. A spray provision can create gift tax complications if the beneficiaries
hold rights that convert future interests into present interests—such as a right to demand distributions.
If the trustee has absolute discretion and beneficiaries have no demand rights, gift tax exposure is
typically minimized. The key is examining the specific rights granted to beneficiaries under the trust
instrument.
Correct Answer: B
Q6. A trustee is administering a trust that holds significant real estate holdings. The trust instrument is
silent on the trustee's power to sell trust property. Under the Uniform Trust Code (UTC), which
statement best describes the trustee's authority?
A. The trustee has no power to sell real estate unless the trust instrument explicitly grants that
authority.
B. The trustee has the power to sell real estate unless the trust instrument specifically restricts that
power. [CORRECT]
C. The trustee must obtain unanimous consent from all beneficiaries before selling any real estate.
D. The trustee may only sell real estate if the sale is necessary to pay trust debts.
Rationale: The best answer is B. The Uniform Trust Code grants trustees broad default administrative
powers, including the power to sell trust property, unless the trust instrument specifically limits that
authority. This approach reflects modern trust administration principles that favor efficient
management while allowing settlors to restrict powers if they choose.
Correct Answer: B
