CANNON TRUST SCHOOL II EXAM
2026/2027 – COMPLETE 300-
QUESTION TEST BANK WITH
VERIFIED ANSWERS & RATIONALES
| ALREADY GRADED A+
SECTION 1: FIDUCIARY LAW & TRUSTEE DUTIES
(Questions 1–50)
Question 1
Which fiduciary principle generally requires a trustee to place the interests of
the beneficiaries ahead of the trustee's personal interests?
A) Duty of diversification
B) Duty of loyalty
C) Duty to invest
D) Duty of delegation
Correct Answer: B - Duty of loyalty
Rationale: The duty of loyalty is a fundamental fiduciary obligation. A trustee must
administer the trust for the benefit of the beneficiaries rather than using the trust
relationship for personal advantage. Transactions involving conflicts of interest require
particularly careful analysis and may be prohibited or subject to authorization
depending on applicable law and the trust instrument.
,Question 2
Under the Uniform Trust Code (UTC), a trustee's duty of loyalty requires that
the trustee:
A) May engage in self-dealing if the transaction is fair to the trust
B) Must act solely in the interests of the beneficiaries
C) May purchase trust property if approved by one beneficiary
D) Can retain a corporate opportunity that overlaps with trust interests
Correct Answer: B - Must act solely in the interests of the beneficiaries
Rationale: UTC Section 802 establishes the duty of loyalty, requiring trustees to
administer the trust solely in the interests of the beneficiaries. Self-dealing (A) is
prohibited unless court-approved or trust-authorized. Purchase from trust (C) violates
self-dealing rules. Corporate opportunities (D) must be offered to the trust first. This is
the highest duty in fiduciary law.
Question 3
A trustee who commingles personal funds with trust assets violates:
A) Only the duty to keep records
B) The duty not to commingle and duty of loyalty
C) Only the duty of care
D) The duty to delegate
Correct Answer: B - The duty not to commingle and duty of loyalty
Rationale: UTC §802(b) prohibits commingling as a breach of loyalty, and §810 requires
segregation of trust property. Commingling creates conflicts of interest, makes
accounting impossible, and exposes trust assets to the trustee's personal creditors. This
is a fundamental breach of fiduciary duty.
,Question 4
The duty of impartiality requires a trustee to:
A) Treat all beneficiaries exactly the same regardless of trust terms
B) Balance the interests of current income beneficiaries and remainder beneficiaries
C) Favor remainder beneficiaries to preserve principal
D) Distribute all income immediately to avoid accumulation
Correct Answer: B - Balance the interests of current income beneficiaries and
remainder beneficiaries
Rationale: UTC §803 requires trustees to act impartially, balancing the interests of
current beneficiaries (who prefer income) and remainder beneficiaries (who prefer
principal growth). This does not mean identical treatment (A) but fair treatment
according to respective interests. Favoring either class (C, D) violates impartiality.
Question 5
Under the prudent investor rule (UPIA), a trustee must evaluate investments
based on:
A) Each individual investment's performance in isolation
B) The total portfolio's risk and return characteristics
C) Current income yield only
D) Historical performance of similar investments
Correct Answer: B - The total portfolio's risk and return characteristics
Rationale: UPIA Section 2(b) requires trustees to evaluate investments not in isolation
but in the context of the total portfolio and overall investment strategy. The modern
prudent investor rule uses Modern Portfolio Theory, focusing on diversification and
total return rather than individual security performance or current yield alone.
, Question 6
A trustee invests trust assets in a speculative startup company owned by the
trustee's sibling without disclosure to beneficiaries. This violates which
fiduciary duty?
A) Duty of care only
B) Duty of loyalty and duty of impartiality
C) Duty to inform only
D) Duty to delegate only
Correct Answer: B - Duty of loyalty and duty of impartiality
Rationale: This violates the duty of loyalty (self-dealing/conflict of interest per UTC
§802) and duty of impartiality (favoring a related party over beneficiaries per UTC
§803). The trustee engaged in self-dealing by investing in a related party's company
without disclosure or consent. Duty to inform (C) is also violated, but the primary
breach is loyalty and impartiality.
Question 7
Under the Uniform Trust Code (UTC), which of the following scenarios best
describes a breach of the trustee's Duty of Loyalty?
A) A trustee invests 50% of the trust assets in high-risk junk bonds because the trust
document specifies a high-risk investment objective.
B) A trustee hires an independent investment advisor to manage the trust portfolio
and pays them a reasonable fee.
C) A trustee sells a trust-owned commercial property to themselves at fair market
value without disclosing the conflict of interest to the beneficiaries.
D) A trustee purchases shares of a mutual fund for the trust that is managed by a
company in which the trustee owns 500 shares of stock.
2026/2027 – COMPLETE 300-
QUESTION TEST BANK WITH
VERIFIED ANSWERS & RATIONALES
| ALREADY GRADED A+
SECTION 1: FIDUCIARY LAW & TRUSTEE DUTIES
(Questions 1–50)
Question 1
Which fiduciary principle generally requires a trustee to place the interests of
the beneficiaries ahead of the trustee's personal interests?
A) Duty of diversification
B) Duty of loyalty
C) Duty to invest
D) Duty of delegation
Correct Answer: B - Duty of loyalty
Rationale: The duty of loyalty is a fundamental fiduciary obligation. A trustee must
administer the trust for the benefit of the beneficiaries rather than using the trust
relationship for personal advantage. Transactions involving conflicts of interest require
particularly careful analysis and may be prohibited or subject to authorization
depending on applicable law and the trust instrument.
,Question 2
Under the Uniform Trust Code (UTC), a trustee's duty of loyalty requires that
the trustee:
A) May engage in self-dealing if the transaction is fair to the trust
B) Must act solely in the interests of the beneficiaries
C) May purchase trust property if approved by one beneficiary
D) Can retain a corporate opportunity that overlaps with trust interests
Correct Answer: B - Must act solely in the interests of the beneficiaries
Rationale: UTC Section 802 establishes the duty of loyalty, requiring trustees to
administer the trust solely in the interests of the beneficiaries. Self-dealing (A) is
prohibited unless court-approved or trust-authorized. Purchase from trust (C) violates
self-dealing rules. Corporate opportunities (D) must be offered to the trust first. This is
the highest duty in fiduciary law.
Question 3
A trustee who commingles personal funds with trust assets violates:
A) Only the duty to keep records
B) The duty not to commingle and duty of loyalty
C) Only the duty of care
D) The duty to delegate
Correct Answer: B - The duty not to commingle and duty of loyalty
Rationale: UTC §802(b) prohibits commingling as a breach of loyalty, and §810 requires
segregation of trust property. Commingling creates conflicts of interest, makes
accounting impossible, and exposes trust assets to the trustee's personal creditors. This
is a fundamental breach of fiduciary duty.
,Question 4
The duty of impartiality requires a trustee to:
A) Treat all beneficiaries exactly the same regardless of trust terms
B) Balance the interests of current income beneficiaries and remainder beneficiaries
C) Favor remainder beneficiaries to preserve principal
D) Distribute all income immediately to avoid accumulation
Correct Answer: B - Balance the interests of current income beneficiaries and
remainder beneficiaries
Rationale: UTC §803 requires trustees to act impartially, balancing the interests of
current beneficiaries (who prefer income) and remainder beneficiaries (who prefer
principal growth). This does not mean identical treatment (A) but fair treatment
according to respective interests. Favoring either class (C, D) violates impartiality.
Question 5
Under the prudent investor rule (UPIA), a trustee must evaluate investments
based on:
A) Each individual investment's performance in isolation
B) The total portfolio's risk and return characteristics
C) Current income yield only
D) Historical performance of similar investments
Correct Answer: B - The total portfolio's risk and return characteristics
Rationale: UPIA Section 2(b) requires trustees to evaluate investments not in isolation
but in the context of the total portfolio and overall investment strategy. The modern
prudent investor rule uses Modern Portfolio Theory, focusing on diversification and
total return rather than individual security performance or current yield alone.
, Question 6
A trustee invests trust assets in a speculative startup company owned by the
trustee's sibling without disclosure to beneficiaries. This violates which
fiduciary duty?
A) Duty of care only
B) Duty of loyalty and duty of impartiality
C) Duty to inform only
D) Duty to delegate only
Correct Answer: B - Duty of loyalty and duty of impartiality
Rationale: This violates the duty of loyalty (self-dealing/conflict of interest per UTC
§802) and duty of impartiality (favoring a related party over beneficiaries per UTC
§803). The trustee engaged in self-dealing by investing in a related party's company
without disclosure or consent. Duty to inform (C) is also violated, but the primary
breach is loyalty and impartiality.
Question 7
Under the Uniform Trust Code (UTC), which of the following scenarios best
describes a breach of the trustee's Duty of Loyalty?
A) A trustee invests 50% of the trust assets in high-risk junk bonds because the trust
document specifies a high-risk investment objective.
B) A trustee hires an independent investment advisor to manage the trust portfolio
and pays them a reasonable fee.
C) A trustee sells a trust-owned commercial property to themselves at fair market
value without disclosing the conflict of interest to the beneficiaries.
D) A trustee purchases shares of a mutual fund for the trust that is managed by a
company in which the trustee owns 500 shares of stock.
