BANK – 300 UNIQUE QUESTIONS EDITION – FIDUCIARY & TRUST
ADMINISTRATION TOTAL QUESTIONS: 300 DETAILED SOLUTIONS &
RATIONALES FOR EVERY QUESTION
TOPICS COVERED:
1. Fiduciary Duties and Standards (Q1-30)
2. Wills and Intestacy (Q31-60)
3. Revocable Trusts (Q61-80)
4. Irrevocable Trusts (Q81-110)
5. Trust Administration and Duties (Q111-150)
6. Property Law (Q151-180)
7. Federal Gift Tax (Q181-210)
8. Federal Estate Tax (Q211-250)
9. Marital Deduction, Portability, and Advanced Planning (Q251-280)
10. Powers of Attorney, Guardianship, and Ethical Issues (Q281-300)
SECTION 1: FIDUCIARY DUTIES AND STANDARDS – Questions 1–30
Question 1
Which of the following best defines a fiduciary?
A) A person who manages their own property
B) A person who holds a position of trust and confidence involving the
management
of property for another
C) A court officer who oversees probate
D) A beneficiary of a trust
Correct Answer: B
Detailed Rationale: A fiduciary is someone who acts in a position of trust,
managing assets for the benefit of another. Common examples include trustees,
executors, and guardians. The fiduciary relationship imposes the highest duty
of care and loyalty under the law. (A) describes an owner, (C) describes a
probate judge or clerk, and (D) describes a trust beneficiary.
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,Question 2
The remainderman of a trust is:
A) The person who creates the trust
B) The person entitled to receive income from the trust
C) The person entitled to the principal after the prior interest ends
D) The trustee who manages the trust
Correct Answer: C
Detailed Rationale: A remainderman is entitled to the trust principal (corpus)
after the life tenant's or income beneficiary's interest terminates. The
settlor creates the trust (A), the income beneficiary receives income (B),
and the trustee manages the trust (D).
Question 3
The duty of loyalty requires a trustee to:
A) Act in their own best interest
B) Act solely in the interest of the beneficiaries, avoiding conflicts of interest
C) Invest only in government bonds
D) Distribute all assets immediately
Correct Answer: B
Detailed Rationale: The duty of loyalty is the cornerstone of fiduciary law.
The trustee must put the beneficiaries' interests above their own and must
not engage in self-dealing or conflicts of interest. (A) is the opposite of
the duty. (C) violates the prudent investor rule, and (D) ignores the trust
terms.
Question 4
The duty of impartiality requires a trustee to:
A) Favor the income beneficiary over the remainderman
B) Treat all beneficiaries fairly and impartially, balancing their respective
interests
C) Favor the remainderman over the income beneficiary
D) Ignore the beneficiaries' needs
Correct Answer: B
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,Detailed Rationale: The duty of impartiality mandates that the trustee balance
the competing interests of current (income) and future (remainder) beneficiaries.
A trustee cannot favor one over the other without justification, such as the
specific terms of the trust.
Question 5
The prudent investor rule (Uniform Prudent Investor Act - UPIA) requires a
trustee to:
A) Invest only in risk-free assets
B) Invest trust assets as a prudent investor would, considering the purposes,
terms, and distribution requirements of the trust
C) Maximize returns at all costs
D) Invest only in real estate
Correct Answer: B
Detailed Rationale: The UPIA replaced the "legal list" approach and mandates
a total-return, risk-management approach. The trustee must consider the
trust's specific goals, beneficiary needs, and the overall portfolio, not
just individual investments. (A) is too restrictive, and (C) ignores the
need for risk management.
Question 6
A trustee who commingles trust funds with their own personal funds violates
which fiduciary duty?
A) Duty to inform
B) Duty of loyalty
C) Duty to account
D) Duty to preserve
Correct Answer: B
Detailed Rationale: Commingling is a classic breach of the duty of loyalty.
The trustee must keep trust property separate and identifiable from their
own property. Commingling creates a conflict of interest and makes tracing
difficult. (A), (C), and (D) are separate duties.
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, Question 7
The duty to account requires a trustee to:
A) Provide a full and accurate accounting of all trust transactions to the
beneficiaries
B) Only account to the settlor
C) Account only when audited by the IRS
D) Account only upon the death of a beneficiary
Correct Answer: A
Detailed Rationale: Trustees are required to provide regular, accurate
accountings (usually annual) to all qualified beneficiaries. This includes
income, principal, gains, losses, and distributions. (B) is incorrect because
the settlor may be deceased or not the sole beneficiary. (C) and (D) are
inaccurate.
Question 8
The "duty to preserve and protect" trust property includes:
A) Allowing the property to depreciate
B) Insuring trust assets, paying taxes, and defending the trust against legal
challenges
C) Ignoring waste
D) Selling all assets immediately
Correct Answer: B
Detailed Rationale: The trustee must safeguard the trust property. This
includes maintaining insurance, paying required taxes, and defending
against lawsuits. (A) is a violation of this duty. (D) may be a breach if
done without authority.
Question 9
A discretionary trust grants the trustee the power to:
A) Distribute income and principal as they see fit, within the standards set
in the trust
B) Distribute only income, not principal
C) Distribute all assets to themselves
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