Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
CANNON TRUST SCHOOL I EXAM 2026/2027
Certified Questions, Verified Correct Answers & Detailed Explanations
Trust Administration Fundamentals • Fiduciary Law Basics • Trust Taxation • Investments • Ethics
Aligned with Cannon Trust School I Curriculum, ABA Trust Administration Standards, Internal Revenue Code (IRC) Trust Tax
Provisions, and Uniform Trust Code (UTC) Standards | 150 Questions | 7 Sections | 2026/2027 Edition
SECTION 1: TRUST ADMINISTRATION FUNDAMENTALS (Q1–Q25)
Q1. Mr. Caldwell establishes a trust for the benefit of his grandchildren, transferring $2.5 million in
marketable securities to a corporate trustee. The trust instrument names the grandchildren as
beneficiaries but is silent on whether the trust is revocable. Under the Uniform Trust Code (UTC) § 602
and the general rule favoring irrevocability, what is the most likely legal status of this trust?
A. Revocable, because the settlor is alive and competent at the time of creation.
B. Irrevocable, because UTC § 602(a) presumes a trust is irrevocable absent express power to revoke.
[CORRECT]
C. Revocable, because the settlor reserved no power to appoint assets to himself.
D. Irrevocable, because the beneficiaries are minors and cannot consent to revocation.
Correct Answer: B
Rationale: Under UTC § 602(a), a trust created by the settlor is presumed irrevocable unless the trust instrument
expressly provides that the settlor may revoke the trust. Because the instrument here is silent, the default rule makes the
trust irrevocable. The settlor's status as alive, the absence of a self-appointment power, or the beneficiaries' minority
status are not relevant to this statutory presumption. Cannon Trust School curriculum emphasizes that the revocability
determination turns entirely on the instrument's language and the UTC default rule.
Q2. A client funds a trust with $1 million in cash but later discovers the named beneficiary (her nephew)
died before the trust was executed. The trust instrument contains no residuary clause or alternate
beneficiary designation. Applying the UTC's rules on trust validity, what is the most likely consequence?
A. The trust fails entirely for lack of identifiable beneficiary, and the corpus returns to the settlor.
[CORRECT]
B. The trust is valid because the settlor's heirs automatically become beneficiaries by operation of law.
C. The trust is reformed by the court to name a substitute beneficiary under the doctrine of cy pres.
D. The trust remains valid because a charitable purpose can be implied from the transfer.
Correct Answer: A
Rationale: A valid private trust requires identifiable beneficiaries (UTC § 402 cmt.; Restatement (Third) of Trusts § 42).
Where the sole beneficiary is dead at the time of creation and no alternate is named, the trust fails for lack of a definite
beneficiary, and the corpus results back to the settlor. Heirs do not automatically step into beneficiary status, cy pres
applies only to charitable trusts, and no charitable purpose is implied here. Cannon Trust School teaches this as the
'definite beneficiary' requirement.
Q3. Trustee Alvarez receives $500,000 in trust assets and, before making any investment decisions, must
comply with the UTC's notice requirement under § 813. Which of the following actions most accurately
satisfies the trustee's duty to inform and report to qualified beneficiaries within the statutory timeframe?
A. Notify beneficiaries within 30 days of acceptance and provide a complete copy of the trust instrument upon
reasonable request.
Certification Examination Page 1 2026/2027 Edition
,Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
B. Notify beneficiaries within 60 days of acceptance and provide annual accountings without any need for
request. [CORRECT]
C. Notify beneficiaries within 90 days of acceptance and provide the trust instrument only if ordered by a court.
D. Notify beneficiaries within 120 days of acceptance and provide accountings only at trust termination.
Correct Answer: B
Rationale: Under UTC § 813, a trustee must notify qualified beneficiaries of the trust's existence, the trustee's identity,
and the beneficiary's right to request a copy of the trust instrument and annual reports. The trustee must respond to such
requests within 60 days and provide annual accountings at least annually. The 30/90/120-day options do not match UTC's
notification framework, and the trustee's duty is not contingent on court order. Cannon Trust School teaches this as the
'duty to inform and account' within fiduciary administration.
Q4. Mrs. Patel created a revocable living trust in 2018 and named herself as sole trustee. In 2026, she
suffers a stroke and her successor trustee (a corporate fiduciary) assumes management. Which of the
following statements correctly describes the income tax treatment during the period of Mrs. Patel's
incapacity, assuming the trust remains a grantor trust under IRC § 676?
A. The trust files Form 1041 and pays tax at compressed trust rates because Mrs. Patel is no longer serving as
trustee.
B. All trust income, deductions, and credits flow through to Mrs. Patel's individual Form 1040 under the
grantor trust rules. [CORRECT]
C. The trust becomes a complex trust automatically and must distribute all income to avoid compressed tax
brackets.
D. The successor trustee may elect to treat the trust as a separate taxpayer to avoid reporting on Mrs. Patel's behalf.
Correct Answer: B
Rationale: Under IRC §§ 676 and 671, a revocable trust whose settlor retains the power to revoke is a grantor trust, and
all items of income, deduction, and credit are reported on the grantor's individual Form 1040 regardless of who serves as
trustee. The grantor trust status does not depend on the grantor's capacity or role as trustee; it depends on retained powers.
Form 1041 is used only as an informational return (with a grantor tax statement), and the trust cannot elect out of
grantor-trust treatment. Cannon Trust School emphasizes that revocable trusts remain income-tax neutral during
incapacity.
Q5. A trustee holds both income-producing dividend stocks and appreciating growth securities within a
single trust. Under the Uniform Principal and Income Act (UPIA) as adopted in the trustee's state, which
of the following allocations is most appropriate when the trustee receives a stock dividend declared on
income-class securities but paid in additional shares of the same class?
A. Allocate the entire stock dividend to income, since it arises from income-class securities.
B. Allocate the entire stock dividend to principal, because stock dividends are generally treated as principal
under UPIA § 501. [CORRECT]
C. Allocate 50% to income and 50% to principal to balance the interests of income and remainder beneficiaries.
D. Allocate the stock dividend to income only if the trust instrument expressly directs such treatment.
Correct Answer: B
Rationale: Under UPIA § 501 (and the prior Principal and Income Act), stock dividends — whether received on
income-class or principal-class securities — are allocated to principal, not income. The rationale is that a stock dividend
does not increase the trust's economic wealth; it merely divides existing equity into more shares. The 50/50 split and
'income-class' analysis are incorrect, and while the trust instrument can override default rules, the UPIA default itself is
principal. Cannon Trust School stresses this rule under fiduciary accounting fundamentals.
Q6. A testamentary trust created under Mr. Hoskins' will becomes irrevocable upon his death. The trustee
receives $3 million in probate assets and $500,000 in life insurance proceeds payable to the trust. Which of
the following best describes the trustee's initial administrative duties under ABA Trust Administration
Certification Examination Page 2 2026/2027 Edition
,Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
standards?
A. Invest all assets immediately in government securities and wait five years before distributing any income.
B. Identify and notify beneficiaries, marshal and inventory assets, obtain tax identification, file Form 1041,
and prepare an initial accounting. [CORRECT]
C. Distribute all liquid assets to income beneficiaries and invest the remainder in equity securities.
D. Petition the court for instructions only if a beneficiary contests the trust within 90 days.
Correct Answer: B
Rationale: The ABA Trust Administration standards require the trustee to marshal and inventory assets, identify and
notify beneficiaries, obtain a federal Employer Identification Number (EIN), file the trust's initial Form 1041, and
prepare an opening accounting. Immediate investment in any specific asset class, premature distributions, or waiting for a
contest are not consistent with prudent administration. Cannon Trust School organizes this initial phase as the 'acceptance
and initial administration' stage of the trust life cycle.
Q7. Trustee Liu discovers that a $250,000 certificate of deposit in the trust will mature in 30 days at a
below-market rate. The trust instrument gives Liu discretion to invest in 'a diversified portfolio of
securities.' Under the Uniform Prudent Investor Act (UPIA) as incorporated into UTC § 902, which of the
following actions is most consistent with Liu's duty of care?
A. Renew the CD automatically to preserve principal and avoid market risk.
B. Liquidate the entire CD and invest 100% of proceeds in equity index funds to maximize long-term growth.
C. Review the portfolio's overall risk/return profile, evaluate reinvestment options in light of the trust's
investment policy statement, and act in accordance with the duty to diversify. [CORRECT]
D. Delegate the investment decision to a third-party advisor and accept their recommendation without independent
review.
Correct Answer: C
Rationale: UPIA requires the trustee to evaluate investments as part of the total portfolio, considering risk/return
objectives appropriate to the trust's purposes (UTC § 902; UPIA § 2). The duty includes diversification absent special
circumstances (UPIA § 3) and prudence in light of the trust's overall strategy. Automatic renewal or 100% equity
allocation ignores portfolio-level analysis, and while delegation is permitted under UPIA § 5, the trustee must still select,
monitor, and review agents. Cannon Trust School teaches this as the 'portfolio-level prudent investor' standard.
Q8. A trustee is administering a trust that pays income to the surviving spouse for life, with the remainder
passing to the couple's children. The trust instrument directs the trustee to 'exercise discretion to allocate
receipts and disbursements between income and principal in a manner that is fair and reasonable to all
beneficiaries.' Under UPIA § 104, which adjustment power does the trustee possess?
A. The trustee may allocate between income and principal only as the trust instrument expressly directs; no default
adjustment power exists.
B. The trustee may make adjustments between income and principal if the trustee determines, considering
the trust's purposes and circumstances, that the adjustment is necessary to fulfill the trustee's duty of
impartiality. [CORRECT]
C. The trustee must allocate all receipts to income and all disbursements to principal regardless of fairness.
D. The trustee may adjust between income and principal only with court approval and beneficiary consent.
Correct Answer: B
Rationale: UPIA § 104 authorizes a trustee to make adjustments between income and principal when necessary to fulfill
the duty of impartiality between income and remainder beneficiaries, considering the trust's purposes, distribution
requirements, and other circumstances. This 'adjustment power' is a default rule that supplements the trust instrument
unless the instrument expressly restricts it. The strict allocation rules and court-approval requirement are incorrect.
Cannon Trust School presents UPIA § 104 as the principal mechanism for impartial administration in
low-yield/high-appreciation environments.
Certification Examination Page 3 2026/2027 Edition
, Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
Q9. Trustee Reynolds is preparing the annual fiduciary accounting for a beneficiary. Which of the
following items should be classified as principal rather than income under the UPIA default rules?
A. Cash dividends declared on common stock held in the trust during the accounting period.
B. Interest received on corporate bonds held by the trust.
C. Stock dividends received on trust holdings, and proceeds from the sale of trust capital assets.
[CORRECT]
D. Rent received from real property held by the trust.
Correct Answer: C
Rationale: Under UPIA §§ 401-501, stock dividends and proceeds from the sale of trust capital assets (realized capital
gains on the disposition of principal assets) are allocated to principal. Cash dividends on common stock, bond interest,
and rent are all classic items of income allocated to the income beneficiary. Cannon Trust School emphasizes that 'yield'
items are income and 'return of capital / capital appreciation realized' items are principal under the UPIA default
framework.
Q10. Mrs. Huang wishes to modify her irrevocable trust, which was created in 2020, to add a new
beneficiary (her granddaughter) and to change the trustee from a bank to an independent trust company.
The trust instrument is silent on modification but contains a trust protector clause authorizing the trust
protector to 'modify the trust to carry out the settlor's intent.' Under modern trust law and the UTC, which
of the following represents the most flexible and commonly available modification route?
A. Court-supervised judicial modification under UTC § 410 only, with notice to all beneficiaries and a finding that
modification is not inconsistent with the settlor's material purpose.
B. Nonjudicial settlement agreement (NJSA) under UTC § 111 only, with unanimous consent of all qualified
beneficiaries.
C. Exercise of the trust protector's modification power as authorized in the trust instrument, supplemented
by NJSA or judicial modification if needed. [CORRECT]
D. Decanting the trust assets into a new trust with the desired terms, with no beneficiary notice required.
Correct Answer: C
Rationale: Modern trust law (UTC § 408A and various state statutes) authorizes trust protectors to exercise modification
powers conferred by the trust instrument. Because this trust has a valid trust protector clause, the trust protector can
exercise that power directly. NJSA (UTC § 111) and judicial modification (UTC § 410) are also available, but they are
alternative routes rather than prerequisites. Decanting is a separate statutory power and typically requires beneficiary
notice. Cannon Trust School teaches that trust protectors, NJSAs, and decanting together form the 'modern modification
toolkit.'
Q11. A trust was funded with $1,000,000 five years ago. The trustee has invested entirely in bonds with a
3% coupon. The annual income beneficiary (the settlor's widow) receives $30,000 per year, while the trust
corpus has grown to $1,050,000 due to bond premium amortization. The remainder beneficiaries
(children) argue the trustee breached the duty of impartiality by failing to invest for growth. Under UPIA
§ 102(b) and the duty of impartiality, which of the following best describes the trustee's exposure?
A. No breach, because the trustee satisfied the income beneficiary's entitlement and preserved principal.
B. Likely breach, because the duty of impartiality requires the trustee to invest for total return and balance
the interests of both income and remainder beneficiaries over the trust's entire term. [CORRECT]
C. No breach, because the trustee is bound to follow the trust instrument's distribution requirements regardless of
growth.
D. Likely breach, because the trustee is required to maximize income distributions to the widow.
Correct Answer: B
Rationale: Under UPIA § 102(b) and the duty of impartiality (UTC § 802), the trustee must invest and administer the
trust as a whole, balancing income and remainder beneficiaries' interests. A 100% bond portfolio for a long-duration trust
Certification Examination Page 4 2026/2027 Edition
CANNON TRUST SCHOOL I EXAM 2026/2027
Certified Questions, Verified Correct Answers & Detailed Explanations
Trust Administration Fundamentals • Fiduciary Law Basics • Trust Taxation • Investments • Ethics
Aligned with Cannon Trust School I Curriculum, ABA Trust Administration Standards, Internal Revenue Code (IRC) Trust Tax
Provisions, and Uniform Trust Code (UTC) Standards | 150 Questions | 7 Sections | 2026/2027 Edition
SECTION 1: TRUST ADMINISTRATION FUNDAMENTALS (Q1–Q25)
Q1. Mr. Caldwell establishes a trust for the benefit of his grandchildren, transferring $2.5 million in
marketable securities to a corporate trustee. The trust instrument names the grandchildren as
beneficiaries but is silent on whether the trust is revocable. Under the Uniform Trust Code (UTC) § 602
and the general rule favoring irrevocability, what is the most likely legal status of this trust?
A. Revocable, because the settlor is alive and competent at the time of creation.
B. Irrevocable, because UTC § 602(a) presumes a trust is irrevocable absent express power to revoke.
[CORRECT]
C. Revocable, because the settlor reserved no power to appoint assets to himself.
D. Irrevocable, because the beneficiaries are minors and cannot consent to revocation.
Correct Answer: B
Rationale: Under UTC § 602(a), a trust created by the settlor is presumed irrevocable unless the trust instrument
expressly provides that the settlor may revoke the trust. Because the instrument here is silent, the default rule makes the
trust irrevocable. The settlor's status as alive, the absence of a self-appointment power, or the beneficiaries' minority
status are not relevant to this statutory presumption. Cannon Trust School curriculum emphasizes that the revocability
determination turns entirely on the instrument's language and the UTC default rule.
Q2. A client funds a trust with $1 million in cash but later discovers the named beneficiary (her nephew)
died before the trust was executed. The trust instrument contains no residuary clause or alternate
beneficiary designation. Applying the UTC's rules on trust validity, what is the most likely consequence?
A. The trust fails entirely for lack of identifiable beneficiary, and the corpus returns to the settlor.
[CORRECT]
B. The trust is valid because the settlor's heirs automatically become beneficiaries by operation of law.
C. The trust is reformed by the court to name a substitute beneficiary under the doctrine of cy pres.
D. The trust remains valid because a charitable purpose can be implied from the transfer.
Correct Answer: A
Rationale: A valid private trust requires identifiable beneficiaries (UTC § 402 cmt.; Restatement (Third) of Trusts § 42).
Where the sole beneficiary is dead at the time of creation and no alternate is named, the trust fails for lack of a definite
beneficiary, and the corpus results back to the settlor. Heirs do not automatically step into beneficiary status, cy pres
applies only to charitable trusts, and no charitable purpose is implied here. Cannon Trust School teaches this as the
'definite beneficiary' requirement.
Q3. Trustee Alvarez receives $500,000 in trust assets and, before making any investment decisions, must
comply with the UTC's notice requirement under § 813. Which of the following actions most accurately
satisfies the trustee's duty to inform and report to qualified beneficiaries within the statutory timeframe?
A. Notify beneficiaries within 30 days of acceptance and provide a complete copy of the trust instrument upon
reasonable request.
Certification Examination Page 1 2026/2027 Edition
,Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
B. Notify beneficiaries within 60 days of acceptance and provide annual accountings without any need for
request. [CORRECT]
C. Notify beneficiaries within 90 days of acceptance and provide the trust instrument only if ordered by a court.
D. Notify beneficiaries within 120 days of acceptance and provide accountings only at trust termination.
Correct Answer: B
Rationale: Under UTC § 813, a trustee must notify qualified beneficiaries of the trust's existence, the trustee's identity,
and the beneficiary's right to request a copy of the trust instrument and annual reports. The trustee must respond to such
requests within 60 days and provide annual accountings at least annually. The 30/90/120-day options do not match UTC's
notification framework, and the trustee's duty is not contingent on court order. Cannon Trust School teaches this as the
'duty to inform and account' within fiduciary administration.
Q4. Mrs. Patel created a revocable living trust in 2018 and named herself as sole trustee. In 2026, she
suffers a stroke and her successor trustee (a corporate fiduciary) assumes management. Which of the
following statements correctly describes the income tax treatment during the period of Mrs. Patel's
incapacity, assuming the trust remains a grantor trust under IRC § 676?
A. The trust files Form 1041 and pays tax at compressed trust rates because Mrs. Patel is no longer serving as
trustee.
B. All trust income, deductions, and credits flow through to Mrs. Patel's individual Form 1040 under the
grantor trust rules. [CORRECT]
C. The trust becomes a complex trust automatically and must distribute all income to avoid compressed tax
brackets.
D. The successor trustee may elect to treat the trust as a separate taxpayer to avoid reporting on Mrs. Patel's behalf.
Correct Answer: B
Rationale: Under IRC §§ 676 and 671, a revocable trust whose settlor retains the power to revoke is a grantor trust, and
all items of income, deduction, and credit are reported on the grantor's individual Form 1040 regardless of who serves as
trustee. The grantor trust status does not depend on the grantor's capacity or role as trustee; it depends on retained powers.
Form 1041 is used only as an informational return (with a grantor tax statement), and the trust cannot elect out of
grantor-trust treatment. Cannon Trust School emphasizes that revocable trusts remain income-tax neutral during
incapacity.
Q5. A trustee holds both income-producing dividend stocks and appreciating growth securities within a
single trust. Under the Uniform Principal and Income Act (UPIA) as adopted in the trustee's state, which
of the following allocations is most appropriate when the trustee receives a stock dividend declared on
income-class securities but paid in additional shares of the same class?
A. Allocate the entire stock dividend to income, since it arises from income-class securities.
B. Allocate the entire stock dividend to principal, because stock dividends are generally treated as principal
under UPIA § 501. [CORRECT]
C. Allocate 50% to income and 50% to principal to balance the interests of income and remainder beneficiaries.
D. Allocate the stock dividend to income only if the trust instrument expressly directs such treatment.
Correct Answer: B
Rationale: Under UPIA § 501 (and the prior Principal and Income Act), stock dividends — whether received on
income-class or principal-class securities — are allocated to principal, not income. The rationale is that a stock dividend
does not increase the trust's economic wealth; it merely divides existing equity into more shares. The 50/50 split and
'income-class' analysis are incorrect, and while the trust instrument can override default rules, the UPIA default itself is
principal. Cannon Trust School stresses this rule under fiduciary accounting fundamentals.
Q6. A testamentary trust created under Mr. Hoskins' will becomes irrevocable upon his death. The trustee
receives $3 million in probate assets and $500,000 in life insurance proceeds payable to the trust. Which of
the following best describes the trustee's initial administrative duties under ABA Trust Administration
Certification Examination Page 2 2026/2027 Edition
,Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
standards?
A. Invest all assets immediately in government securities and wait five years before distributing any income.
B. Identify and notify beneficiaries, marshal and inventory assets, obtain tax identification, file Form 1041,
and prepare an initial accounting. [CORRECT]
C. Distribute all liquid assets to income beneficiaries and invest the remainder in equity securities.
D. Petition the court for instructions only if a beneficiary contests the trust within 90 days.
Correct Answer: B
Rationale: The ABA Trust Administration standards require the trustee to marshal and inventory assets, identify and
notify beneficiaries, obtain a federal Employer Identification Number (EIN), file the trust's initial Form 1041, and
prepare an opening accounting. Immediate investment in any specific asset class, premature distributions, or waiting for a
contest are not consistent with prudent administration. Cannon Trust School organizes this initial phase as the 'acceptance
and initial administration' stage of the trust life cycle.
Q7. Trustee Liu discovers that a $250,000 certificate of deposit in the trust will mature in 30 days at a
below-market rate. The trust instrument gives Liu discretion to invest in 'a diversified portfolio of
securities.' Under the Uniform Prudent Investor Act (UPIA) as incorporated into UTC § 902, which of the
following actions is most consistent with Liu's duty of care?
A. Renew the CD automatically to preserve principal and avoid market risk.
B. Liquidate the entire CD and invest 100% of proceeds in equity index funds to maximize long-term growth.
C. Review the portfolio's overall risk/return profile, evaluate reinvestment options in light of the trust's
investment policy statement, and act in accordance with the duty to diversify. [CORRECT]
D. Delegate the investment decision to a third-party advisor and accept their recommendation without independent
review.
Correct Answer: C
Rationale: UPIA requires the trustee to evaluate investments as part of the total portfolio, considering risk/return
objectives appropriate to the trust's purposes (UTC § 902; UPIA § 2). The duty includes diversification absent special
circumstances (UPIA § 3) and prudence in light of the trust's overall strategy. Automatic renewal or 100% equity
allocation ignores portfolio-level analysis, and while delegation is permitted under UPIA § 5, the trustee must still select,
monitor, and review agents. Cannon Trust School teaches this as the 'portfolio-level prudent investor' standard.
Q8. A trustee is administering a trust that pays income to the surviving spouse for life, with the remainder
passing to the couple's children. The trust instrument directs the trustee to 'exercise discretion to allocate
receipts and disbursements between income and principal in a manner that is fair and reasonable to all
beneficiaries.' Under UPIA § 104, which adjustment power does the trustee possess?
A. The trustee may allocate between income and principal only as the trust instrument expressly directs; no default
adjustment power exists.
B. The trustee may make adjustments between income and principal if the trustee determines, considering
the trust's purposes and circumstances, that the adjustment is necessary to fulfill the trustee's duty of
impartiality. [CORRECT]
C. The trustee must allocate all receipts to income and all disbursements to principal regardless of fairness.
D. The trustee may adjust between income and principal only with court approval and beneficiary consent.
Correct Answer: B
Rationale: UPIA § 104 authorizes a trustee to make adjustments between income and principal when necessary to fulfill
the duty of impartiality between income and remainder beneficiaries, considering the trust's purposes, distribution
requirements, and other circumstances. This 'adjustment power' is a default rule that supplements the trust instrument
unless the instrument expressly restricts it. The strict allocation rules and court-approval requirement are incorrect.
Cannon Trust School presents UPIA § 104 as the principal mechanism for impartial administration in
low-yield/high-appreciation environments.
Certification Examination Page 3 2026/2027 Edition
, Cannon Trust School I Exam 2026/2027 | Trust Administration • Fiduciary Law • Taxation • Investments • Ethics
Q9. Trustee Reynolds is preparing the annual fiduciary accounting for a beneficiary. Which of the
following items should be classified as principal rather than income under the UPIA default rules?
A. Cash dividends declared on common stock held in the trust during the accounting period.
B. Interest received on corporate bonds held by the trust.
C. Stock dividends received on trust holdings, and proceeds from the sale of trust capital assets.
[CORRECT]
D. Rent received from real property held by the trust.
Correct Answer: C
Rationale: Under UPIA §§ 401-501, stock dividends and proceeds from the sale of trust capital assets (realized capital
gains on the disposition of principal assets) are allocated to principal. Cash dividends on common stock, bond interest,
and rent are all classic items of income allocated to the income beneficiary. Cannon Trust School emphasizes that 'yield'
items are income and 'return of capital / capital appreciation realized' items are principal under the UPIA default
framework.
Q10. Mrs. Huang wishes to modify her irrevocable trust, which was created in 2020, to add a new
beneficiary (her granddaughter) and to change the trustee from a bank to an independent trust company.
The trust instrument is silent on modification but contains a trust protector clause authorizing the trust
protector to 'modify the trust to carry out the settlor's intent.' Under modern trust law and the UTC, which
of the following represents the most flexible and commonly available modification route?
A. Court-supervised judicial modification under UTC § 410 only, with notice to all beneficiaries and a finding that
modification is not inconsistent with the settlor's material purpose.
B. Nonjudicial settlement agreement (NJSA) under UTC § 111 only, with unanimous consent of all qualified
beneficiaries.
C. Exercise of the trust protector's modification power as authorized in the trust instrument, supplemented
by NJSA or judicial modification if needed. [CORRECT]
D. Decanting the trust assets into a new trust with the desired terms, with no beneficiary notice required.
Correct Answer: C
Rationale: Modern trust law (UTC § 408A and various state statutes) authorizes trust protectors to exercise modification
powers conferred by the trust instrument. Because this trust has a valid trust protector clause, the trust protector can
exercise that power directly. NJSA (UTC § 111) and judicial modification (UTC § 410) are also available, but they are
alternative routes rather than prerequisites. Decanting is a separate statutory power and typically requires beneficiary
notice. Cannon Trust School teaches that trust protectors, NJSAs, and decanting together form the 'modern modification
toolkit.'
Q11. A trust was funded with $1,000,000 five years ago. The trustee has invested entirely in bonds with a
3% coupon. The annual income beneficiary (the settlor's widow) receives $30,000 per year, while the trust
corpus has grown to $1,050,000 due to bond premium amortization. The remainder beneficiaries
(children) argue the trustee breached the duty of impartiality by failing to invest for growth. Under UPIA
§ 102(b) and the duty of impartiality, which of the following best describes the trustee's exposure?
A. No breach, because the trustee satisfied the income beneficiary's entitlement and preserved principal.
B. Likely breach, because the duty of impartiality requires the trustee to invest for total return and balance
the interests of both income and remainder beneficiaries over the trust's entire term. [CORRECT]
C. No breach, because the trustee is bound to follow the trust instrument's distribution requirements regardless of
growth.
D. Likely breach, because the trustee is required to maximize income distributions to the widow.
Correct Answer: B
Rationale: Under UPIA § 102(b) and the duty of impartiality (UTC § 802), the trustee must invest and administer the
trust as a whole, balancing income and remainder beneficiaries' interests. A 100% bond portfolio for a long-duration trust
Certification Examination Page 4 2026/2027 Edition
