CANNON TRUST SCHOOL III ACTUAL
EXAM 2026 Questions 1-250 | 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 250 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
A fiduciary may be liable for breach of fiduciary duty in each of
the following circumstances, EXCEPT when:
A) It fails to comply with the terms of the governing instrument
B) It fails to act in a prudent manner
C) It fails to diversify the assets
D) It follows the specific investment directions of the grantor as
set forth in the trust instrument
Correct Answer: D
Rationale: Following the specific investment directions of the
grantor as set forth in the trust instrument is not a breach of
fiduciary duty, provided the directions are not illegal or impossible.
,The fiduciary's duty is to follow the terms of the trust. A is a breach
because the fiduciary must follow the trust terms. B and C are
breaches because the fiduciary must act prudently and diversify. In
contrast, specific directions protect the fiduciary from liability .
Question 2
Which type of trust is commonly used to provide for a surviving
spouse while also preserving the deceased spouse's applicable
exclusion amount?
A) Qualified Terminable Interest Property (QTIP) Trust
B) Credit Shelter (Bypass) Trust
C) Charitable Remainder Trust
D) Life Insurance Trust
Correct Answer: B
Rationale: A Credit Shelter Trust (also called a Bypass Trust) is
specifically designed to preserve the deceased spouse's applicable
exclusion amount and transfer assets to beneficiaries (often
children) free of estate tax. A QTIP Trust provides income to a
spouse while retaining control over the ultimate distribution. A
Charitable Remainder Trust provides income to a beneficiary with
remainder to charity. A Life Insurance Trust removes insurance
proceeds from the estate .
,Question 3
A fiduciary's duties to the beneficiaries are generally stated in
terms of the "Prudent Person Rule." The most recent edition of
the Uniform Prudent Investor Act requires the fiduciary to:
A) Invest in income-producing securities only
B) Invest in securities with a proven track record of only increasing
in value
C) Act as a prudent investor would act, considering the purposes,
terms, distribution requirements, and other circumstances of the
trust, including the need for diversification
D) Seek the advice of a professional investment advisor
Correct Answer: C
Rationale: The Uniform Prudent Investor Act requires the fiduciary
to act as a prudent investor would, considering the trust's purposes,
terms, distribution requirements, and other circumstances, including
the need for diversification. It does not require income-only
investments, guaranteed profits, or mandatory professional advice.
The standard is one of prudence in portfolio management rather
than individual investment performance .
Question 4
What is the most significant difference between a revocable trust
and an irrevocable trust for estate tax purposes?
, A) A revocable trust's assets are included in the grantor's estate;
an irrevocable trust's assets generally are not
B) A revocable trust is a testamentary trust; an irrevocable trust is
an inter vivos trust
C) The grantor of a revocable trust is taxed on income; the grantor
of an irrevocable trust is never taxed on income
D) A revocable trust is subject to spendthrift protections; an
irrevocable trust is not
Correct Answer: A
Rationale: For estate tax purposes, the key difference is that
revocable trust assets are included in the grantor's gross estate
because the grantor retains control over the assets. Irrevocable trust
assets generally are not included in the grantor's estate, provided
the transfer was complete and not for retained interests .
Question 5
A client owns a $300,000 home as a joint tenant with his wife, a
$50,000 car in his own name, and a $200,000 brokerage account
in his name alone. At his death, the probate estate includes:
A) $250,000 (car and brokerage account)
B) $300,000 (home only)
C) $550,000 (home, car, and brokerage account)
D) $50,000 (car only)
Correct Answer: A
EXAM 2026 Questions 1-250 | 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 250 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
A fiduciary may be liable for breach of fiduciary duty in each of
the following circumstances, EXCEPT when:
A) It fails to comply with the terms of the governing instrument
B) It fails to act in a prudent manner
C) It fails to diversify the assets
D) It follows the specific investment directions of the grantor as
set forth in the trust instrument
Correct Answer: D
Rationale: Following the specific investment directions of the
grantor as set forth in the trust instrument is not a breach of
fiduciary duty, provided the directions are not illegal or impossible.
,The fiduciary's duty is to follow the terms of the trust. A is a breach
because the fiduciary must follow the trust terms. B and C are
breaches because the fiduciary must act prudently and diversify. In
contrast, specific directions protect the fiduciary from liability .
Question 2
Which type of trust is commonly used to provide for a surviving
spouse while also preserving the deceased spouse's applicable
exclusion amount?
A) Qualified Terminable Interest Property (QTIP) Trust
B) Credit Shelter (Bypass) Trust
C) Charitable Remainder Trust
D) Life Insurance Trust
Correct Answer: B
Rationale: A Credit Shelter Trust (also called a Bypass Trust) is
specifically designed to preserve the deceased spouse's applicable
exclusion amount and transfer assets to beneficiaries (often
children) free of estate tax. A QTIP Trust provides income to a
spouse while retaining control over the ultimate distribution. A
Charitable Remainder Trust provides income to a beneficiary with
remainder to charity. A Life Insurance Trust removes insurance
proceeds from the estate .
,Question 3
A fiduciary's duties to the beneficiaries are generally stated in
terms of the "Prudent Person Rule." The most recent edition of
the Uniform Prudent Investor Act requires the fiduciary to:
A) Invest in income-producing securities only
B) Invest in securities with a proven track record of only increasing
in value
C) Act as a prudent investor would act, considering the purposes,
terms, distribution requirements, and other circumstances of the
trust, including the need for diversification
D) Seek the advice of a professional investment advisor
Correct Answer: C
Rationale: The Uniform Prudent Investor Act requires the fiduciary
to act as a prudent investor would, considering the trust's purposes,
terms, distribution requirements, and other circumstances, including
the need for diversification. It does not require income-only
investments, guaranteed profits, or mandatory professional advice.
The standard is one of prudence in portfolio management rather
than individual investment performance .
Question 4
What is the most significant difference between a revocable trust
and an irrevocable trust for estate tax purposes?
, A) A revocable trust's assets are included in the grantor's estate;
an irrevocable trust's assets generally are not
B) A revocable trust is a testamentary trust; an irrevocable trust is
an inter vivos trust
C) The grantor of a revocable trust is taxed on income; the grantor
of an irrevocable trust is never taxed on income
D) A revocable trust is subject to spendthrift protections; an
irrevocable trust is not
Correct Answer: A
Rationale: For estate tax purposes, the key difference is that
revocable trust assets are included in the grantor's gross estate
because the grantor retains control over the assets. Irrevocable trust
assets generally are not included in the grantor's estate, provided
the transfer was complete and not for retained interests .
Question 5
A client owns a $300,000 home as a joint tenant with his wife, a
$50,000 car in his own name, and a $200,000 brokerage account
in his name alone. At his death, the probate estate includes:
A) $250,000 (car and brokerage account)
B) $300,000 (home only)
C) $550,000 (home, car, and brokerage account)
D) $50,000 (car only)
Correct Answer: A
