California Professional Fiduciary
Examination with Practice Questions And
Correct Answers
1. A professional fiduciary serves as trustee of an irrevocable trust that holds a
concentrated position in a single volatile stock. The trust document includes a
direction to retain the stock but also grants the trustee discretion to diversify for the
beneficiaries' best interests. The trustee is aware that the trust is the settlor's primary
source of income. Under the Uniform Prudent Investor Act as adopted in California,
which action best fulfills the trustee's duty?
A. Retain the stock indefinitely because the trust document explicitly directs retention,
and the trustee must follow the settlor's instructions.
B. Diversify immediately without court approval, because the prudent investor rule
always overrides trust provisions that conflict with modern portfolio theory.
C. Evaluate the settlor's intent, the purposes of the trust, and the beneficiaries' needs, and
if retention is imprudent, petition the court for instructions or seek modification of the
trust.
D. Liquidate the stock and invest in a balanced portfolio, because the trustee has absolute
discretion and the settlor's income needs are secondary to the beneficiaries' remainder
interests.
Answer: C. Evaluate the settlor's intent, the purposes of the trust, and the
beneficiaries' needs, and if retention is imprudent, petition the court for instructions
or seek modification of the trust.
Rationale: Under California Probate Code §16000 et seq., the trustee must act as a
prudent investor would, but must also consider the purposes, terms, and distribution
requirements of the trust. If a directed retention conflicts with prudence, the trustee should
seek court instructions rather than unilaterally overriding the settlor's expressed intent or
ignoring the duty to diversify. Options A and B are too absolute, and D incorrectly
subordinates the settlor's income interest.
Page 1 of 114
,2. A professional fiduciary is appointed as conservator of the estate for an adult with
moderate dementia. The conservatee's adult child, who lives out of state, requests that
the conservator sell the conservatee's residence to pay for in-home care. The
conservatee has previously expressed a strong desire to remain in the home. Which
legal standard should guide the conservator's decision?
A. The conservator must follow the adult child's request because the child is the
presumed successor trustee and has the conservatee's best interests at heart.
B. The conservator must act in accordance with the conservatee's expressed wishes and
the least restrictive alternative, while ensuring the conservatee's needs are met, and may
need court approval for the sale.
C. The conservator has absolute authority to sell the residence without court approval, as
long as the proceeds are used for the conservatee's care.
D. The conservator should immediately sell the residence because in-home care is always
less restrictive than institutional care, and the child's request aligns with that goal.
Answer: B. The conservator must act in accordance with the conservatee's expressed
wishes and the least restrictive alternative, while ensuring the conservatee's needs are
met, and may need court approval for the sale.
Rationale: California Probate Code §2352 requires the conservator to act in the
conservatee's best interest and, when possible, to consider the conservatee's expressed
wishes and the least restrictive alternative. The conservator must also comply with §2540 et
seq. regarding the sale of real property, which often requires court authorization. Option A
defers improperly to a family member, C ignores statutory safeguards, and D oversimplifies
the least restrictive alternative analysis.
Page 2 of 114
,3. A professional fiduciary is serving as trustee of a trust that requires distributions of
net income to the settlor's spouse for life, remainder to charity. The trustee also serves
as the spouse's conservator. The spouse needs additional funds for medical expenses.
The trust document permits invasion of principal for the spouse's health, education,
maintenance, and support. Which action creates the greatest risk of a conflict of
interest?
A. The trustee invades principal to pay the spouse's medical expenses, documenting that
the invasion is consistent with the HEMS standard and the spouse's needs.
B. The trustee petitions the court for instructions on whether to invade principal, given
the trustee's dual role as conservator and trustee.
C. The trustee uses trust income to pay the spouse's medical expenses and preserves
principal for the remainder charity, reasoning that income is sufficient.
D. The trustee invades principal to pay the spouse's medical expenses but also increases
the trustee's own compensation from the trust to cover the additional administrative
work.
Answer: D. The trustee invades principal to pay the spouse's medical expenses but also
increases the trustee's own compensation from the trust to cover the additional
administrative work.
Rationale: Increasing the trustee's own compensation in connection with a distribution
decision that benefits the trustee indirectly (by increasing the trust's administrative burden)
creates a self-dealing conflict under Probate Code §16004. Options A, B, and C are all
permissible if properly documented and consistent with fiduciary duty, though B may be
prudent given the dual role.
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, 4. A professional fiduciary is preparing a first account and report for a probate estate.
The estate's primary asset is a closely held business. The fiduciary used an
independent appraisal to value the business but also received an unsolicited offer to
purchase it at a significantly higher price. The fiduciary did not disclose the offer to
the court or beneficiaries. Which statement best characterizes the fiduciary's duty?
A. The fiduciary had no duty to disclose the offer because it was unsolicited and not part
of the formal appraisal process.
B. The fiduciary must disclose all material information, including the offer, because it
affects the value of the estate and the beneficiaries' interests, and failure to do so may
constitute a breach of fiduciary duty.
C. The fiduciary may accept the offer without court approval because it is in the best
interest of the estate to maximize value.
D. The fiduciary should ignore the offer because the independent appraisal is the
conclusive valuation for probate purposes.
Answer: B. The fiduciary must disclose all material information, including the offer,
because it affects the value of the estate and the beneficiaries' interests, and failure to
do so may constitute a breach of fiduciary duty.
Rationale: Under Probate Code §16004 and the fiduciary duty of loyalty, a fiduciary must
disclose material information that could affect the estate or beneficiaries. An unsolicited
offer at a higher price is material and must be disclosed to the court and interested parties.
Options A and D are incorrect because they ignore the duty of disclosure; C is wrong
because court approval is typically required for the sale of estate assets, especially a
business.
Page 4 of 114
Examination with Practice Questions And
Correct Answers
1. A professional fiduciary serves as trustee of an irrevocable trust that holds a
concentrated position in a single volatile stock. The trust document includes a
direction to retain the stock but also grants the trustee discretion to diversify for the
beneficiaries' best interests. The trustee is aware that the trust is the settlor's primary
source of income. Under the Uniform Prudent Investor Act as adopted in California,
which action best fulfills the trustee's duty?
A. Retain the stock indefinitely because the trust document explicitly directs retention,
and the trustee must follow the settlor's instructions.
B. Diversify immediately without court approval, because the prudent investor rule
always overrides trust provisions that conflict with modern portfolio theory.
C. Evaluate the settlor's intent, the purposes of the trust, and the beneficiaries' needs, and
if retention is imprudent, petition the court for instructions or seek modification of the
trust.
D. Liquidate the stock and invest in a balanced portfolio, because the trustee has absolute
discretion and the settlor's income needs are secondary to the beneficiaries' remainder
interests.
Answer: C. Evaluate the settlor's intent, the purposes of the trust, and the
beneficiaries' needs, and if retention is imprudent, petition the court for instructions
or seek modification of the trust.
Rationale: Under California Probate Code §16000 et seq., the trustee must act as a
prudent investor would, but must also consider the purposes, terms, and distribution
requirements of the trust. If a directed retention conflicts with prudence, the trustee should
seek court instructions rather than unilaterally overriding the settlor's expressed intent or
ignoring the duty to diversify. Options A and B are too absolute, and D incorrectly
subordinates the settlor's income interest.
Page 1 of 114
,2. A professional fiduciary is appointed as conservator of the estate for an adult with
moderate dementia. The conservatee's adult child, who lives out of state, requests that
the conservator sell the conservatee's residence to pay for in-home care. The
conservatee has previously expressed a strong desire to remain in the home. Which
legal standard should guide the conservator's decision?
A. The conservator must follow the adult child's request because the child is the
presumed successor trustee and has the conservatee's best interests at heart.
B. The conservator must act in accordance with the conservatee's expressed wishes and
the least restrictive alternative, while ensuring the conservatee's needs are met, and may
need court approval for the sale.
C. The conservator has absolute authority to sell the residence without court approval, as
long as the proceeds are used for the conservatee's care.
D. The conservator should immediately sell the residence because in-home care is always
less restrictive than institutional care, and the child's request aligns with that goal.
Answer: B. The conservator must act in accordance with the conservatee's expressed
wishes and the least restrictive alternative, while ensuring the conservatee's needs are
met, and may need court approval for the sale.
Rationale: California Probate Code §2352 requires the conservator to act in the
conservatee's best interest and, when possible, to consider the conservatee's expressed
wishes and the least restrictive alternative. The conservator must also comply with §2540 et
seq. regarding the sale of real property, which often requires court authorization. Option A
defers improperly to a family member, C ignores statutory safeguards, and D oversimplifies
the least restrictive alternative analysis.
Page 2 of 114
,3. A professional fiduciary is serving as trustee of a trust that requires distributions of
net income to the settlor's spouse for life, remainder to charity. The trustee also serves
as the spouse's conservator. The spouse needs additional funds for medical expenses.
The trust document permits invasion of principal for the spouse's health, education,
maintenance, and support. Which action creates the greatest risk of a conflict of
interest?
A. The trustee invades principal to pay the spouse's medical expenses, documenting that
the invasion is consistent with the HEMS standard and the spouse's needs.
B. The trustee petitions the court for instructions on whether to invade principal, given
the trustee's dual role as conservator and trustee.
C. The trustee uses trust income to pay the spouse's medical expenses and preserves
principal for the remainder charity, reasoning that income is sufficient.
D. The trustee invades principal to pay the spouse's medical expenses but also increases
the trustee's own compensation from the trust to cover the additional administrative
work.
Answer: D. The trustee invades principal to pay the spouse's medical expenses but also
increases the trustee's own compensation from the trust to cover the additional
administrative work.
Rationale: Increasing the trustee's own compensation in connection with a distribution
decision that benefits the trustee indirectly (by increasing the trust's administrative burden)
creates a self-dealing conflict under Probate Code §16004. Options A, B, and C are all
permissible if properly documented and consistent with fiduciary duty, though B may be
prudent given the dual role.
Page 3 of 114
, 4. A professional fiduciary is preparing a first account and report for a probate estate.
The estate's primary asset is a closely held business. The fiduciary used an
independent appraisal to value the business but also received an unsolicited offer to
purchase it at a significantly higher price. The fiduciary did not disclose the offer to
the court or beneficiaries. Which statement best characterizes the fiduciary's duty?
A. The fiduciary had no duty to disclose the offer because it was unsolicited and not part
of the formal appraisal process.
B. The fiduciary must disclose all material information, including the offer, because it
affects the value of the estate and the beneficiaries' interests, and failure to do so may
constitute a breach of fiduciary duty.
C. The fiduciary may accept the offer without court approval because it is in the best
interest of the estate to maximize value.
D. The fiduciary should ignore the offer because the independent appraisal is the
conclusive valuation for probate purposes.
Answer: B. The fiduciary must disclose all material information, including the offer,
because it affects the value of the estate and the beneficiaries' interests, and failure to
do so may constitute a breach of fiduciary duty.
Rationale: Under Probate Code §16004 and the fiduciary duty of loyalty, a fiduciary must
disclose material information that could affect the estate or beneficiaries. An unsolicited
offer at a higher price is material and must be disclosed to the court and interested parties.
Options A and D are incorrect because they ignore the duty of disclosure; C is wrong
because court approval is typically required for the sale of estate assets, especially a
business.
Page 4 of 114
