CANNON FINANCIAL INSTITUTE TRUST SCHOOL II EXAM – QUESTIONS AND ANSWERS | VERIFIED AND
WELL DETAILED ANSWERS | PLUS RATIONALES | GUARANTEED PASS | LATEST EXAM UPDATE
Core Domains
1. Advanced Estate Planning and Marital Deduction Strategies
2. Generation-Skipping Transfer (GST) Tax and Planning
3. Trust Administration and Fiduciary Accounting (Principal and Income)
4. Investment Management and Modern Portfolio Theory
5. Tax Compliance (Income, Estate, and Gift Tax)
6. Regulatory and Compliance Frameworks (OCC, UPIA, UPAIA)
7. Fiduciary Duties and Risk Management
Introduction
This comprehensive examination is designed to assess the advanced knowledge and practical skills required for
success in the Cannon Financial Institute Trust School II program and the CTFA™ certification exam. Trust
School II builds upon foundational concepts, delving into sophisticated estate planning techniques, the
intricacies of the generation-skipping transfer tax, marital deduction planning, and the administration of
complex trusts. The exam emphasizes the application of fiduciary principles to real-world scenarios, requiring
candidates to navigate the interplay between tax law, investment management, and beneficiary needs. Mastery
of these topics is essential for trust officers, wealth advisors, and financial professionals seeking to provide
expert guidance in fiduciary services. This practice exam mirrors the structure, difficulty, and scope of the actual
Trust School II comprehensive examination .
,SECTION ONE: QUESTIONS 1 – 100
1. Question text
Which of the following is NOT a requirement of a Qualified Terminable Interest Property (QTIP) trust?
A. All net accounting income must be paid to the surviving spouse at least annually.
B. Principal may 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 must be the only permissible distributee during their lifetime.
🟢B
🔴 Explanation: A QTIP trust requires that all income be paid to the surviving spouse at least annually, that
the spouse has the right to require the trustee to convert non-income-producing property, and that the
spouse is the only permissible distributee during their lifetime. A discretionary power to distribute principal
to the spouse for HEMS is NOT a requirement and, if included, does not disqualify the trust for QTIP
treatment; however, the question asks for what is NOT a requirement, making B the correct choice as it is an
optional feature, not a mandatory one .
2. Question text
In a pro rata fractional formula, which trust is frozen during administration prior to funding?
A. The marital trust.
,B. The residual trust.
C. Neither, they must share the appreciation/depreciation.
D. Both the marital and residual trusts.
🟢C
🔴 Explanation: In a pro rata fractional formula, neither the marital nor the residual trust is frozen during
administration. Instead, both trusts must share proportionally in the appreciation or depreciation of the
estate's assets that occurs between the date of death and the date of funding. This ensures that the surviving
spouse receives their fractional share of the estate as it exists at the time of funding, not at the date of
death .
3. Question text
What is mandatory to qualify a general power of appointment (GPA) marital deduction trust?
A. The right to encroach upon the corpus of the marital deduction share by the surviving spouse during their
lifetime.
B. Ultimate distribution to the decedent's heirs.
C. All net accounting income must be paid at least annually to the surviving spouse, and the surviving spouse
must be given either a lifetime GPA or a testamentary GPA.
D. The surviving spouse has the right to make gifts from the marital deduction share during their lifetime.
🟢C
🔴 Explanation: To qualify for the marital deduction, a general power of appointment trust requires that the
surviving spouse receive all income for life, paid at least annually, and that the surviving spouse be given a
general power of appointment over the trust principal, exercisable either during their lifetime or by will. This
ensures the property is included in the surviving spouse's estate for tax purposes, which is the fundamental
requirement for the marital deduction .
, 4. Question text
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees, with one-half charged to income
and one-half to principal. What is the trust's accounting income?
A. $0
B. $23,000
C. $25,000
D. $27,000
🟢C
🔴 Explanation: Trust accounting income is calculated by taking gross income (dividends) and subtracting
expenses that are charged to income. In this case, the trust earned $27,000 in dividends. It paid $4,000 in
trustee fees, and because one-half ($2,000) is charged to income, the accounting income is $27,000 - $2,000
= $25,000. The portion of the fee charged to principal ($2,000) does not reduce accounting income .
5. Question text
If the trust document is silent regarding a particular cash transaction, the Trust Administrator should first look
to which of the following for guidance?
A. The court of jurisdiction.
B. The Principal and Income Law of the state.
C. The grantor.
D. The Office of the Comptroller of the Currency (OCC).
🟢B
🔴 Explanation: When the trust instrument is silent on how to allocate a receipt or disbursement between
principal and income, the Trust Administrator must look to the state's Principal and Income Act (UPAIA) for
WELL DETAILED ANSWERS | PLUS RATIONALES | GUARANTEED PASS | LATEST EXAM UPDATE
Core Domains
1. Advanced Estate Planning and Marital Deduction Strategies
2. Generation-Skipping Transfer (GST) Tax and Planning
3. Trust Administration and Fiduciary Accounting (Principal and Income)
4. Investment Management and Modern Portfolio Theory
5. Tax Compliance (Income, Estate, and Gift Tax)
6. Regulatory and Compliance Frameworks (OCC, UPIA, UPAIA)
7. Fiduciary Duties and Risk Management
Introduction
This comprehensive examination is designed to assess the advanced knowledge and practical skills required for
success in the Cannon Financial Institute Trust School II program and the CTFA™ certification exam. Trust
School II builds upon foundational concepts, delving into sophisticated estate planning techniques, the
intricacies of the generation-skipping transfer tax, marital deduction planning, and the administration of
complex trusts. The exam emphasizes the application of fiduciary principles to real-world scenarios, requiring
candidates to navigate the interplay between tax law, investment management, and beneficiary needs. Mastery
of these topics is essential for trust officers, wealth advisors, and financial professionals seeking to provide
expert guidance in fiduciary services. This practice exam mirrors the structure, difficulty, and scope of the actual
Trust School II comprehensive examination .
,SECTION ONE: QUESTIONS 1 – 100
1. Question text
Which of the following is NOT a requirement of a Qualified Terminable Interest Property (QTIP) trust?
A. All net accounting income must be paid to the surviving spouse at least annually.
B. Principal may 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 must be the only permissible distributee during their lifetime.
🟢B
🔴 Explanation: A QTIP trust requires that all income be paid to the surviving spouse at least annually, that
the spouse has the right to require the trustee to convert non-income-producing property, and that the
spouse is the only permissible distributee during their lifetime. A discretionary power to distribute principal
to the spouse for HEMS is NOT a requirement and, if included, does not disqualify the trust for QTIP
treatment; however, the question asks for what is NOT a requirement, making B the correct choice as it is an
optional feature, not a mandatory one .
2. Question text
In a pro rata fractional formula, which trust is frozen during administration prior to funding?
A. The marital trust.
,B. The residual trust.
C. Neither, they must share the appreciation/depreciation.
D. Both the marital and residual trusts.
🟢C
🔴 Explanation: In a pro rata fractional formula, neither the marital nor the residual trust is frozen during
administration. Instead, both trusts must share proportionally in the appreciation or depreciation of the
estate's assets that occurs between the date of death and the date of funding. This ensures that the surviving
spouse receives their fractional share of the estate as it exists at the time of funding, not at the date of
death .
3. Question text
What is mandatory to qualify a general power of appointment (GPA) marital deduction trust?
A. The right to encroach upon the corpus of the marital deduction share by the surviving spouse during their
lifetime.
B. Ultimate distribution to the decedent's heirs.
C. All net accounting income must be paid at least annually to the surviving spouse, and the surviving spouse
must be given either a lifetime GPA or a testamentary GPA.
D. The surviving spouse has the right to make gifts from the marital deduction share during their lifetime.
🟢C
🔴 Explanation: To qualify for the marital deduction, a general power of appointment trust requires that the
surviving spouse receive all income for life, paid at least annually, and that the surviving spouse be given a
general power of appointment over the trust principal, exercisable either during their lifetime or by will. This
ensures the property is included in the surviving spouse's estate for tax purposes, which is the fundamental
requirement for the marital deduction .
, 4. Question text
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees, with one-half charged to income
and one-half to principal. What is the trust's accounting income?
A. $0
B. $23,000
C. $25,000
D. $27,000
🟢C
🔴 Explanation: Trust accounting income is calculated by taking gross income (dividends) and subtracting
expenses that are charged to income. In this case, the trust earned $27,000 in dividends. It paid $4,000 in
trustee fees, and because one-half ($2,000) is charged to income, the accounting income is $27,000 - $2,000
= $25,000. The portion of the fee charged to principal ($2,000) does not reduce accounting income .
5. Question text
If the trust document is silent regarding a particular cash transaction, the Trust Administrator should first look
to which of the following for guidance?
A. The court of jurisdiction.
B. The Principal and Income Law of the state.
C. The grantor.
D. The Office of the Comptroller of the Currency (OCC).
🟢B
🔴 Explanation: When the trust instrument is silent on how to allocate a receipt or disbursement between
principal and income, the Trust Administrator must look to the state's Principal and Income Act (UPAIA) for
