CANNON TRUST SCHOOL III ACTUAL
EXAM 2026 Questions 1-350 | Verified
Answers with Detailed Rationales
Secure your Certified Trust and Fiduciary Advisor (CTFA) designation on
the first attempt with this complete practice bank containing questions 1
through 350 for the Cannon Trust School III actual exam. This
comprehensive preparation guide features 100% verified answers and
detailed legal and financial rationales covering advanced estate planning,
trust administration, fiduciary law, and asset management strategies. It is
an indispensable study tool for wealth managers, trust officers, and
financial planners looking to clear this elite industry milestone with top
marks.
Question 1
What is the primary fiduciary duty that prohibits a trustee from placing
personal interests ahead of the beneficiaries' interests?
A) Duty of impartiality
B) Duty of loyalty
C) Duty of care
D) Duty of accountability
Correct Answer: B
Rationale: The duty of loyalty is a fundamental fiduciary duty that requires a
trustee to act solely in the interests of the beneficiaries and to avoid conflicts
of interest. This duty prohibits self-dealing and requires the trustee to put
beneficiaries' interests first. The duty of impartiality requires fair treatment of
all beneficiaries. The duty of care requires prudence. The duty of
accountability requires record-keeping and reporting .
,Question 2
A trust owns a closely held business. The trustee must decide whether to
sell the business or continue operations. Which duty is MOST relevant to
this decision?
A) Duty of loyalty
B) Duty to account
C) Duty of prudence in preserving the trust assets
D) Duty to invest in income-producing assets
Correct Answer: C
Rationale: The duty to preserve trust assets and act prudently is most
relevant to decisions about selling or continuing a closely held business. The
trustee must act with the care, skill, and caution that a prudent person would
exercise, considering the trust's purposes. The duty of loyalty (A) applies but is
not the most specific. Duties to account (B) and to invest in income-producing
assets (D) are not the primary concerns in this decision .
Question 3
Under the Uniform Principal and Income Act (UPIA), how are bond
premiums and discounts typically treated?
A) Bond premiums are amortized against income; discounts are accreted to
income
B) Bond premiums are charged to principal; discounts are allocated to
income
C) Both premiums and discounts are allocated to principal
D) Both premiums and discounts are allocated to income
*Correct Answer: A or B depending on state law
,Rationale: Under the UPIA, bond premiums are typically amortized against
income (reducing income), while discounts are accreted to income (increasing
income). This ensures that the income beneficiary receives a fair return based
on the bond's effective yield .
Question 4
Which of the following is a characteristic of a "sprinkling trust" (spray trust)?
A) The trustee must distribute all income equally among beneficiaries
B) The trustee has discretion to distribute income among a class of
beneficiaries in varying amounts
C) The trust limits distributions to one beneficiary
D) The trust distributes only principal
Correct Answer: B
Rationale: A sprinkling or spray trust gives the trustee discretion to distribute
income among a class of beneficiaries in varying amounts. The trustee can
"sprinkle" or "spray" income based on the needs of each beneficiary. This is
different from a mandatory distribution trust where income must be
distributed according to fixed shares .
Question 5
A "funded trust" means:
A) Assets have been transferred to the trust
B) The trust has been signed and notarized
C) The trust is registered with the court
D) The trust has named beneficiaries
, Correct Answer: A
Rationale: A funded trust has assets titled in the name of the trust. Unfunded
trusts lack assets and cannot operate effectively. Funding requires retitling
assets from the grantor's name to the trustee's name .
Question 6
When a trustee delegates investment functions under the UPIA, which of
the following is required?
A) The delegation must be to an authorized investment advisor
B) The trustee must exercise reasonable care in selecting the agent and
must monitor the agent's performance
C) The delegation must be approved by all beneficiaries
D) The delegation must be approved by the court
Correct Answer: B
Rationale: The UPIA permits delegation of investment functions, provided
the trustee exercises reasonable care in selecting the agent and monitors the
agent's performance. Beneficiary or court approval is not typically required.
The agent must be qualified, but not necessarily "authorized" in a specific
sense .
Question 7
Which of the following is NOT a "fiduciary capacity" under the Uniform
Trust Code?
A) Trustee
B) Guardian
EXAM 2026 Questions 1-350 | Verified
Answers with Detailed Rationales
Secure your Certified Trust and Fiduciary Advisor (CTFA) designation on
the first attempt with this complete practice bank containing questions 1
through 350 for the Cannon Trust School III actual exam. This
comprehensive preparation guide features 100% verified answers and
detailed legal and financial rationales covering advanced estate planning,
trust administration, fiduciary law, and asset management strategies. It is
an indispensable study tool for wealth managers, trust officers, and
financial planners looking to clear this elite industry milestone with top
marks.
Question 1
What is the primary fiduciary duty that prohibits a trustee from placing
personal interests ahead of the beneficiaries' interests?
A) Duty of impartiality
B) Duty of loyalty
C) Duty of care
D) Duty of accountability
Correct Answer: B
Rationale: The duty of loyalty is a fundamental fiduciary duty that requires a
trustee to act solely in the interests of the beneficiaries and to avoid conflicts
of interest. This duty prohibits self-dealing and requires the trustee to put
beneficiaries' interests first. The duty of impartiality requires fair treatment of
all beneficiaries. The duty of care requires prudence. The duty of
accountability requires record-keeping and reporting .
,Question 2
A trust owns a closely held business. The trustee must decide whether to
sell the business or continue operations. Which duty is MOST relevant to
this decision?
A) Duty of loyalty
B) Duty to account
C) Duty of prudence in preserving the trust assets
D) Duty to invest in income-producing assets
Correct Answer: C
Rationale: The duty to preserve trust assets and act prudently is most
relevant to decisions about selling or continuing a closely held business. The
trustee must act with the care, skill, and caution that a prudent person would
exercise, considering the trust's purposes. The duty of loyalty (A) applies but is
not the most specific. Duties to account (B) and to invest in income-producing
assets (D) are not the primary concerns in this decision .
Question 3
Under the Uniform Principal and Income Act (UPIA), how are bond
premiums and discounts typically treated?
A) Bond premiums are amortized against income; discounts are accreted to
income
B) Bond premiums are charged to principal; discounts are allocated to
income
C) Both premiums and discounts are allocated to principal
D) Both premiums and discounts are allocated to income
*Correct Answer: A or B depending on state law
,Rationale: Under the UPIA, bond premiums are typically amortized against
income (reducing income), while discounts are accreted to income (increasing
income). This ensures that the income beneficiary receives a fair return based
on the bond's effective yield .
Question 4
Which of the following is a characteristic of a "sprinkling trust" (spray trust)?
A) The trustee must distribute all income equally among beneficiaries
B) The trustee has discretion to distribute income among a class of
beneficiaries in varying amounts
C) The trust limits distributions to one beneficiary
D) The trust distributes only principal
Correct Answer: B
Rationale: A sprinkling or spray trust gives the trustee discretion to distribute
income among a class of beneficiaries in varying amounts. The trustee can
"sprinkle" or "spray" income based on the needs of each beneficiary. This is
different from a mandatory distribution trust where income must be
distributed according to fixed shares .
Question 5
A "funded trust" means:
A) Assets have been transferred to the trust
B) The trust has been signed and notarized
C) The trust is registered with the court
D) The trust has named beneficiaries
, Correct Answer: A
Rationale: A funded trust has assets titled in the name of the trust. Unfunded
trusts lack assets and cannot operate effectively. Funding requires retitling
assets from the grantor's name to the trustee's name .
Question 6
When a trustee delegates investment functions under the UPIA, which of
the following is required?
A) The delegation must be to an authorized investment advisor
B) The trustee must exercise reasonable care in selecting the agent and
must monitor the agent's performance
C) The delegation must be approved by all beneficiaries
D) The delegation must be approved by the court
Correct Answer: B
Rationale: The UPIA permits delegation of investment functions, provided
the trustee exercises reasonable care in selecting the agent and monitors the
agent's performance. Beneficiary or court approval is not typically required.
The agent must be qualified, but not necessarily "authorized" in a specific
sense .
Question 7
Which of the following is NOT a "fiduciary capacity" under the Uniform
Trust Code?
A) Trustee
B) Guardian
