CANNON TRUST SCHOOL I EXAM 2025/2026
COMPLETE Q&A STUDY GUIDE WITH VERIFIED
ANSWERS AND DETAILED RATIONALES 200+
PRACTICE QUESTIONS | A+ GRADED
Q1. Which of the following best defines a trust?
A. A contract between two parties for the sale of property
B. A fiduciary arrangement where a trustee holds legal title to assets for
the benefit of one or more beneficiaries
C. A corporation formed for charitable purposes
D. A will that disposes of property upon death
RATIONALE: A trust is a fiduciary relationship in which one party (the
trustee) holds legal title to property for the benefit of another party (the
beneficiary). The trustee has a duty to manage the assets according to the
terms of the trust instrument and applicable law.
Q2. An irrevocable trust is characterized by which of the following?
A. The settlor may amend the trust at any time
B. The settlor cannot revoke or modify the trust without beneficiary
consent or court order
C. The trust assets are included in the settlor's probate estate
D. The trust automatically terminates after 10 years
RATIONALE: Irrevocable trusts cannot be modified or terminated by the
settlor without the consent of all beneficiaries or a court order. They offer
asset protection, estate tax benefits, and remove assets from the settlor's
taxable estate.
Q3. A trust designed to hold assets for a person with a disability without
disqualifying them from government benefits (e.g., Medicaid, SSI) is called a:
,A. Charitable trust
B. Spendthrift trust
C. Special needs trust (supplemental needs trust)
D. Totten trust
RATIONALE: A special needs trust (also called a supplemental needs trust) is
designed to hold assets for a person with a disability without disqualifying
them from government benefits like Medicaid or SSI. The trust funds are used
for supplemental needs beyond basic government support.
Q4. Which type of trust is most commonly established as a "pour-over"
vehicle for retirement assets?
A. Irrevocable life insurance trust
B. Revocable living trust
C. Testamentary trust
D. Charitable remainder trust
RATIONALE: A revocable living trust is often used as a pour-over vehicle for
retirement assets and other property. It avoids probate and allows assets to
pass directly to beneficiaries according to the trust terms while the settlor
retains control during their lifetime.
Q5. Which of the following is considered the most contractual and least
fiduciary relationship?
A. Guardianship
B. Trustee
C. Custodian with no investment discretion
D. Executor
RATIONALE: A custodian with no investment discretion has the most
contractual and least fiduciary relationship. The custodian holds assets but
does not exercise investment discretion or make fiduciary decisions. Their
duties are primarily ministerial and custodial in nature.
,Q6. All of the following are considered fiduciaries under OCC Regulation 9
EXCEPT:
A. Trustee
B. Executor/personal representative
C. Investment advisor in an agency account with limited discretion
D. Guardian
RATIONALE: OCC Regulation 9 defines fiduciaries as trustees, executors,
administrators, guardians, and agents with investment discretion. An
investment advisor in an agency account with limited discretion may not meet
the full fiduciary definition if discretion is restricted.
Q7. A simple trust is defined as one that:
A. Permits distributions of principal
B. Requires mandatory distribution of all income to beneficiaries on an
annual basis
C. Has charitable beneficiaries
D. Allows accumulation of income
RATIONALE: A simple trust requires mandatory distribution of all income to
the beneficiaries on an annual basis. It does not make distributions of
principal and does not have charitable beneficiaries. All income is taxed to the
beneficiaries.
Q8. A spendthrift trust provision:
A. Allows the beneficiary to assign their interest
B. Protects trust assets from the beneficiary's creditors and restricts the
beneficiary's ability to transfer their interest
C. Requires all income to be distributed immediately
D. Terminates upon the beneficiary's death
RATIONALE: A spendthrift clause prevents beneficiaries from voluntarily or
involuntarily transferring their interest in the trust and protects trust assets
from creditors. It ensures the trust property is used for the beneficiary's
benefit as intended.
, Q9. The fiduciary standard of care requires a trustee to:
A. Maximize returns at any cost
B. Act with the care, skill, prudence, and diligence that a prudent person
would exercise
C. Follow only the settlor's written instructions
D. Avoid all risk investments
RATIONALE: The fiduciary standard of care, embodied in the Uniform
Prudent Investor Act, requires trustees to act with prudence, care, and
diligence. They must consider the purposes, terms, and distribution
requirements of the trust.
Q10. Under the Uniform Prudent Investor Act (UPIA), trustees must:
A. Invest only in government bonds
B. Diversify investments unless special circumstances dictate otherwise
C. Avoid all stock investments
D. Invest only in real estate
RATIONALE: UPIA requires trustees to diversify investments unless special
circumstances dictate otherwise. Diversification reduces risk and is a key
element of prudent investing. The Act emphasizes total portfolio management.
Q11. A testamentary trust is created:
A. During the settlor's lifetime
B. Through a will and takes effect upon the settlor's death
C. Through a court order during incapacity
D. Through a charitable organization
RATIONALE: A testamentary trust is created through a will and becomes
effective upon the settlor's death. It is subject to probate proceedings and
cannot take effect during the settlor's lifetime.
COMPLETE Q&A STUDY GUIDE WITH VERIFIED
ANSWERS AND DETAILED RATIONALES 200+
PRACTICE QUESTIONS | A+ GRADED
Q1. Which of the following best defines a trust?
A. A contract between two parties for the sale of property
B. A fiduciary arrangement where a trustee holds legal title to assets for
the benefit of one or more beneficiaries
C. A corporation formed for charitable purposes
D. A will that disposes of property upon death
RATIONALE: A trust is a fiduciary relationship in which one party (the
trustee) holds legal title to property for the benefit of another party (the
beneficiary). The trustee has a duty to manage the assets according to the
terms of the trust instrument and applicable law.
Q2. An irrevocable trust is characterized by which of the following?
A. The settlor may amend the trust at any time
B. The settlor cannot revoke or modify the trust without beneficiary
consent or court order
C. The trust assets are included in the settlor's probate estate
D. The trust automatically terminates after 10 years
RATIONALE: Irrevocable trusts cannot be modified or terminated by the
settlor without the consent of all beneficiaries or a court order. They offer
asset protection, estate tax benefits, and remove assets from the settlor's
taxable estate.
Q3. A trust designed to hold assets for a person with a disability without
disqualifying them from government benefits (e.g., Medicaid, SSI) is called a:
,A. Charitable trust
B. Spendthrift trust
C. Special needs trust (supplemental needs trust)
D. Totten trust
RATIONALE: A special needs trust (also called a supplemental needs trust) is
designed to hold assets for a person with a disability without disqualifying
them from government benefits like Medicaid or SSI. The trust funds are used
for supplemental needs beyond basic government support.
Q4. Which type of trust is most commonly established as a "pour-over"
vehicle for retirement assets?
A. Irrevocable life insurance trust
B. Revocable living trust
C. Testamentary trust
D. Charitable remainder trust
RATIONALE: A revocable living trust is often used as a pour-over vehicle for
retirement assets and other property. It avoids probate and allows assets to
pass directly to beneficiaries according to the trust terms while the settlor
retains control during their lifetime.
Q5. Which of the following is considered the most contractual and least
fiduciary relationship?
A. Guardianship
B. Trustee
C. Custodian with no investment discretion
D. Executor
RATIONALE: A custodian with no investment discretion has the most
contractual and least fiduciary relationship. The custodian holds assets but
does not exercise investment discretion or make fiduciary decisions. Their
duties are primarily ministerial and custodial in nature.
,Q6. All of the following are considered fiduciaries under OCC Regulation 9
EXCEPT:
A. Trustee
B. Executor/personal representative
C. Investment advisor in an agency account with limited discretion
D. Guardian
RATIONALE: OCC Regulation 9 defines fiduciaries as trustees, executors,
administrators, guardians, and agents with investment discretion. An
investment advisor in an agency account with limited discretion may not meet
the full fiduciary definition if discretion is restricted.
Q7. A simple trust is defined as one that:
A. Permits distributions of principal
B. Requires mandatory distribution of all income to beneficiaries on an
annual basis
C. Has charitable beneficiaries
D. Allows accumulation of income
RATIONALE: A simple trust requires mandatory distribution of all income to
the beneficiaries on an annual basis. It does not make distributions of
principal and does not have charitable beneficiaries. All income is taxed to the
beneficiaries.
Q8. A spendthrift trust provision:
A. Allows the beneficiary to assign their interest
B. Protects trust assets from the beneficiary's creditors and restricts the
beneficiary's ability to transfer their interest
C. Requires all income to be distributed immediately
D. Terminates upon the beneficiary's death
RATIONALE: A spendthrift clause prevents beneficiaries from voluntarily or
involuntarily transferring their interest in the trust and protects trust assets
from creditors. It ensures the trust property is used for the beneficiary's
benefit as intended.
, Q9. The fiduciary standard of care requires a trustee to:
A. Maximize returns at any cost
B. Act with the care, skill, prudence, and diligence that a prudent person
would exercise
C. Follow only the settlor's written instructions
D. Avoid all risk investments
RATIONALE: The fiduciary standard of care, embodied in the Uniform
Prudent Investor Act, requires trustees to act with prudence, care, and
diligence. They must consider the purposes, terms, and distribution
requirements of the trust.
Q10. Under the Uniform Prudent Investor Act (UPIA), trustees must:
A. Invest only in government bonds
B. Diversify investments unless special circumstances dictate otherwise
C. Avoid all stock investments
D. Invest only in real estate
RATIONALE: UPIA requires trustees to diversify investments unless special
circumstances dictate otherwise. Diversification reduces risk and is a key
element of prudent investing. The Act emphasizes total portfolio management.
Q11. A testamentary trust is created:
A. During the settlor's lifetime
B. Through a will and takes effect upon the settlor's death
C. Through a court order during incapacity
D. Through a charitable organization
RATIONALE: A testamentary trust is created through a will and becomes
effective upon the settlor's death. It is subject to probate proceedings and
cannot take effect during the settlor's lifetime.
