Cannon Financial Institute Trust School II
Exam Actual Exam 2026/2027 | Complete
Exam-Style Questions | 100% Verified –
Detailed Rationales – Pass Guaranteed –
A+ Graded
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 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
,Correct Answer: B
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 her lifetime.
Question 2
Which of the following is NOT a requirement of a QTIP trust?
A) All net accounting income to be paid to the surviving spouse at least annually
B) Principal to be distributed at the trustee's discretion for the surviving spouse's
health, education, support, or maintenance
C) The surviving spouse has the ability to require the trustee to convert non-income
producing assets to income productive assets
D) The surviving spouse may be the only permissible distributee during their lifetime
Correct Answer: B
Rationale: A QTIP trust requires that all net accounting income be paid to the
surviving spouse at least annually. The surviving spouse must have the ability to
require the trustee to convert non-income producing assets to income productive
assets. The surviving spouse must be the only permissible distributee during their
lifetime. Principal distributions to the surviving spouse are NOT a requirement; in
fact, the QTIP trust typically restricts principal distributions to preserve the trust for
remainder beneficiaries.
,Question 3
What is the purpose of a Crummey power in an irrevocable trust?
A) To allow the grantor to revoke the trust
B) To give the beneficiary a limited right to withdraw contributions, making gifts
eligible for the annual gift tax exclusion
C) To allow the trustee to distribute principal without restriction
D) To eliminate all gift tax liability
Correct Answer: B
Rationale: A Crummey power gives the beneficiary a limited right (typically 30
days) to withdraw contributions made to an irrevocable trust. This creates a
present interest in the gift, making it eligible for the annual gift tax exclusion under
IRC Section 2503(b). Without such a provision, gifts to an irrevocable trust may be
considered future interests and not qualify for the annual exclusion.
Question 4
Which of the following is a requirement for a trust to be classified as a "simple
trust" for tax purposes?
A) It must distribute all income currently
B) It must have at least one charitable beneficiary
C) It must distribute all principal within 5 years
D) It must be irrevocable
Correct Answer: A
, Rationale: A simple trust is defined for tax purposes as a trust that (1) is required to
distribute all of its income currently, (2) does not distribute any principal during the
tax year, and (3) does not have any charitable beneficiaries. Simple trusts are taxed
differently from complex trusts, with the trust receiving a deduction for income
distributed to beneficiaries.
Question 5
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees and had
no other expenses. How much of the dividend income is taxable to the
beneficiaries?
A) $27,000
B) $23,000
C) $4,000
D) $0
Correct Answer: B
Rationale: In a simple trust, the trust receives a deduction for income distributed to
beneficiaries. However, trustee fees and other administrative expenses are
generally allocated against income unless the trust instrument specifies otherwise.
The trust's Distributable Net Income (DNI) is $23,000 ($27,000 - $4,000). This
amount is taxable to the beneficiaries, while the trust pays tax on any income not
distributed.
Question 6
What is the primary difference between a revocable trust and an irrevocable trust?
Exam Actual Exam 2026/2027 | Complete
Exam-Style Questions | 100% Verified –
Detailed Rationales – Pass Guaranteed –
A+ Graded
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 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
,Correct Answer: B
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 her lifetime.
Question 2
Which of the following is NOT a requirement of a QTIP trust?
A) All net accounting income to be paid to the surviving spouse at least annually
B) Principal to be distributed at the trustee's discretion for the surviving spouse's
health, education, support, or maintenance
C) The surviving spouse has the ability to require the trustee to convert non-income
producing assets to income productive assets
D) The surviving spouse may be the only permissible distributee during their lifetime
Correct Answer: B
Rationale: A QTIP trust requires that all net accounting income be paid to the
surviving spouse at least annually. The surviving spouse must have the ability to
require the trustee to convert non-income producing assets to income productive
assets. The surviving spouse must be the only permissible distributee during their
lifetime. Principal distributions to the surviving spouse are NOT a requirement; in
fact, the QTIP trust typically restricts principal distributions to preserve the trust for
remainder beneficiaries.
,Question 3
What is the purpose of a Crummey power in an irrevocable trust?
A) To allow the grantor to revoke the trust
B) To give the beneficiary a limited right to withdraw contributions, making gifts
eligible for the annual gift tax exclusion
C) To allow the trustee to distribute principal without restriction
D) To eliminate all gift tax liability
Correct Answer: B
Rationale: A Crummey power gives the beneficiary a limited right (typically 30
days) to withdraw contributions made to an irrevocable trust. This creates a
present interest in the gift, making it eligible for the annual gift tax exclusion under
IRC Section 2503(b). Without such a provision, gifts to an irrevocable trust may be
considered future interests and not qualify for the annual exclusion.
Question 4
Which of the following is a requirement for a trust to be classified as a "simple
trust" for tax purposes?
A) It must distribute all income currently
B) It must have at least one charitable beneficiary
C) It must distribute all principal within 5 years
D) It must be irrevocable
Correct Answer: A
, Rationale: A simple trust is defined for tax purposes as a trust that (1) is required to
distribute all of its income currently, (2) does not distribute any principal during the
tax year, and (3) does not have any charitable beneficiaries. Simple trusts are taxed
differently from complex trusts, with the trust receiving a deduction for income
distributed to beneficiaries.
Question 5
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees and had
no other expenses. How much of the dividend income is taxable to the
beneficiaries?
A) $27,000
B) $23,000
C) $4,000
D) $0
Correct Answer: B
Rationale: In a simple trust, the trust receives a deduction for income distributed to
beneficiaries. However, trustee fees and other administrative expenses are
generally allocated against income unless the trust instrument specifies otherwise.
The trust's Distributable Net Income (DNI) is $23,000 ($27,000 - $4,000). This
amount is taxable to the beneficiaries, while the trust pays tax on any income not
distributed.
Question 6
What is the primary difference between a revocable trust and an irrevocable trust?
