CANNON TRUST SCHOOL III EXAM
QUESTIONS AND ANSWERS
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.
D. custodian with no investment discretion. - Correct Answers -D. custodian with no
investment discretion.
Your bank is sole trustee of a credit shelter trust. The trust portfolio is invested in a
diversified portfolio of domestic stocks and bonds. The current beneficiary requests that
the trustee delegate a portion of its investment management responsibility to a
recognized third-party advisor who specializes in international investing. The trust is
governed by a state recognizing the Prudent Investor Rule. The trustee should:
A. decline the request as an impermissible delegation of its trust powers.
B. agree to the request subject to the review and approval of its risk management
committee.
C. agree to the request so long as it obtains authorization and indemnification from all
beneficiaries and reconfirm on an annual basis.
D. agree to the request if satisfied that delegation will promote investment
diversification, and monitor the investment advisor's activities and performance. -
Correct Answers -D. agree to the request if satisfied that delegation will promote
investment
diversification, and monitor the investment advisor's activities and performance.
Your client used your firm's standard trust document. He requests that you draft an
amendment to the document. You should:
A. refer him to several qualified estate planning attorneys.
B. refer him to his accountant before you draft the amendment.
C. draft the amendment and have your firm's counsel review it.
D. draft the amendment using your firm's will manual as a template. - Correct Answers -
A. refer him to several qualified estate planning attorneys.
Chris Jones is a trust officer with ABC Bank and Trust. Chris just received a phone call
from his old roommate, Fred Jones. Fred works for XYZ Company, an engineering
,company. Fred told Chris that his company has just developed a new product that will
revolutionize its industry. The company has decided not to announce the product until
the product is patented. Chris purchases shares in his own name and also invests a
large amount of trust monies for his two largest trust accounts. Which statement is
correct?
A. Fred has violated Rule 10b-5, but Chris has not.
B. Chris has not violated 10b-5 because Chris is not an insider.
C. Chris and Fred have not violated 10b-5, but they may have violated 16b depending
on the timing of their trades.
D. Chris and Fred have violated Rule 10b-5 by trading on nonpublic information. -
Correct Answers -D. Chris and Fred have violated Rule 10b-5 by trading on nonpublic
information.
A Trust Department Manager is standing in a lunch line at a crowded restaurant with a
Trust Officer. They are surrounded by individuals who are not bank employees. The
trust officer receives an email on his smartphone and loudly says "Yes! We just closed
the Miller account, a funded irrevocable trust with a $50,000 fee. That's fantastic, lunch
is on me!" Which of the following is the MOST appropriate response for the Trust
Department Manager?
A. Ask how you can be of assistance in the opening of the account.
B. Publicly berate the Trust Officer for a breach of confidentiality.
C. Privately discuss with the Trust Officer that this may have been a breach of
confidentiality.
D. Offer congratulations and accept their offer to buy lunch. - Correct Answers -C.
Privately discuss with the Trust Officer that this may have been a breach of
confidentiality.
Each of the following is a valid defense to a charge of Self Dealing by a Trustee, except
one. Which of the following is NOT a valid defense for the Trustee?
A. The Trust Administration Committee approved the action.
B. A specific exculpatory provision is in the instrument permitting the action.
C. The written consent of each of the beneficiaries, after being fully informed of all
material information.
D. An order from the court with approval of the Trustee's action. - Correct Answers -A.
The Trust Administration Committee approved the action.
Helen, a Trust officer, is talking to a client at a cocktail party, unrelated to work. The
client is a very successful businessperson in town and shares with Helen that she is
starting a new business that she thinks will be very rewarding. She invites Helen to
invest in this exciting new opportunity for units of $10,000. Helen is financially able to
invest, and impressed with the investment opportunity. Should Helen accept or decline
the offer and why?
, A. Accept. These offers do not come along often, and Helen knows the client's track
record is good.
B. Decline. It would be a conflict of interest.
C. Accept. The investment is not related to work and thus no conflict would exist.
D. Decline. The new enterprise might want financing from Helen's firm. - Correct
Answers -B. Decline. It would be a conflict of interest.
Your firm uses a standardized IRA form with four pre-printed beneficiary choices. A
large client wants to change the beneficiary designation to name his trust, not one of the
pre-printed options. You know this can be done since another client's attorney recently
sent in just such language. Which of the following is your most appropriate response?
A. Suggest he stick to one of the four pre-printed options.
B. Copy the other attorney's language, substituting this client's trust name and having
him initial the change.
C. Have the client write what he wants.
D. Refer the client to his attorney to make the change desired. - Correct Answers -D.
Refer the client to his attorney to make the change desired.
Peter has served as trust officer on Winifred's revocable living trust for many years and
become good friends with Winifred. Peter always admired a sculpture in Winifred's
garden and Winifred offered to give it to him as a gift (valued at less than the annual
exclusion amount). Bank policy prohibited such a gift, so Peter could not accept.
Following Winifred's death the estate property was sold in a public auction. Peter asked
a friend to buy the sculpture for him, up to a certain price, and then Peter paid his friend
for the sculpture he had always admired. What ethical principle has Peter breached?
A. Duty of Loyalty
B. None, since the client has died and he bought it fairly at a public auction.
C. Self-Dealing
D. Conflict of Interest - Correct Answers -C. Self-Dealing
A beneficiary feels close to you and shares personal information unrelated to the trust.
The beneficiary asks you not to share this information with the individual co-trustee, who
is a family member. Which of the following is your MOST appropriate response?
A. Keep the beneficiaries' information confidential.
B. Tell the co-trustee the information.
C. Do not tell the co-trustee, but document the information in the file.
D. Tell the co-trustee only if asked specifically. - Correct Answers -A. Keep the
beneficiaries' information confidential.
Your firm offers several non-registered Hedge funds which are wholly owned,
managed, and operated by your firm. You are looking to invest funds from one of the
irrevocable trusts on which your firm acts as sole-trustee. Which of the flowing is MOST
likely to be true?
QUESTIONS AND ANSWERS
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.
D. custodian with no investment discretion. - Correct Answers -D. custodian with no
investment discretion.
Your bank is sole trustee of a credit shelter trust. The trust portfolio is invested in a
diversified portfolio of domestic stocks and bonds. The current beneficiary requests that
the trustee delegate a portion of its investment management responsibility to a
recognized third-party advisor who specializes in international investing. The trust is
governed by a state recognizing the Prudent Investor Rule. The trustee should:
A. decline the request as an impermissible delegation of its trust powers.
B. agree to the request subject to the review and approval of its risk management
committee.
C. agree to the request so long as it obtains authorization and indemnification from all
beneficiaries and reconfirm on an annual basis.
D. agree to the request if satisfied that delegation will promote investment
diversification, and monitor the investment advisor's activities and performance. -
Correct Answers -D. agree to the request if satisfied that delegation will promote
investment
diversification, and monitor the investment advisor's activities and performance.
Your client used your firm's standard trust document. He requests that you draft an
amendment to the document. You should:
A. refer him to several qualified estate planning attorneys.
B. refer him to his accountant before you draft the amendment.
C. draft the amendment and have your firm's counsel review it.
D. draft the amendment using your firm's will manual as a template. - Correct Answers -
A. refer him to several qualified estate planning attorneys.
Chris Jones is a trust officer with ABC Bank and Trust. Chris just received a phone call
from his old roommate, Fred Jones. Fred works for XYZ Company, an engineering
,company. Fred told Chris that his company has just developed a new product that will
revolutionize its industry. The company has decided not to announce the product until
the product is patented. Chris purchases shares in his own name and also invests a
large amount of trust monies for his two largest trust accounts. Which statement is
correct?
A. Fred has violated Rule 10b-5, but Chris has not.
B. Chris has not violated 10b-5 because Chris is not an insider.
C. Chris and Fred have not violated 10b-5, but they may have violated 16b depending
on the timing of their trades.
D. Chris and Fred have violated Rule 10b-5 by trading on nonpublic information. -
Correct Answers -D. Chris and Fred have violated Rule 10b-5 by trading on nonpublic
information.
A Trust Department Manager is standing in a lunch line at a crowded restaurant with a
Trust Officer. They are surrounded by individuals who are not bank employees. The
trust officer receives an email on his smartphone and loudly says "Yes! We just closed
the Miller account, a funded irrevocable trust with a $50,000 fee. That's fantastic, lunch
is on me!" Which of the following is the MOST appropriate response for the Trust
Department Manager?
A. Ask how you can be of assistance in the opening of the account.
B. Publicly berate the Trust Officer for a breach of confidentiality.
C. Privately discuss with the Trust Officer that this may have been a breach of
confidentiality.
D. Offer congratulations and accept their offer to buy lunch. - Correct Answers -C.
Privately discuss with the Trust Officer that this may have been a breach of
confidentiality.
Each of the following is a valid defense to a charge of Self Dealing by a Trustee, except
one. Which of the following is NOT a valid defense for the Trustee?
A. The Trust Administration Committee approved the action.
B. A specific exculpatory provision is in the instrument permitting the action.
C. The written consent of each of the beneficiaries, after being fully informed of all
material information.
D. An order from the court with approval of the Trustee's action. - Correct Answers -A.
The Trust Administration Committee approved the action.
Helen, a Trust officer, is talking to a client at a cocktail party, unrelated to work. The
client is a very successful businessperson in town and shares with Helen that she is
starting a new business that she thinks will be very rewarding. She invites Helen to
invest in this exciting new opportunity for units of $10,000. Helen is financially able to
invest, and impressed with the investment opportunity. Should Helen accept or decline
the offer and why?
, A. Accept. These offers do not come along often, and Helen knows the client's track
record is good.
B. Decline. It would be a conflict of interest.
C. Accept. The investment is not related to work and thus no conflict would exist.
D. Decline. The new enterprise might want financing from Helen's firm. - Correct
Answers -B. Decline. It would be a conflict of interest.
Your firm uses a standardized IRA form with four pre-printed beneficiary choices. A
large client wants to change the beneficiary designation to name his trust, not one of the
pre-printed options. You know this can be done since another client's attorney recently
sent in just such language. Which of the following is your most appropriate response?
A. Suggest he stick to one of the four pre-printed options.
B. Copy the other attorney's language, substituting this client's trust name and having
him initial the change.
C. Have the client write what he wants.
D. Refer the client to his attorney to make the change desired. - Correct Answers -D.
Refer the client to his attorney to make the change desired.
Peter has served as trust officer on Winifred's revocable living trust for many years and
become good friends with Winifred. Peter always admired a sculpture in Winifred's
garden and Winifred offered to give it to him as a gift (valued at less than the annual
exclusion amount). Bank policy prohibited such a gift, so Peter could not accept.
Following Winifred's death the estate property was sold in a public auction. Peter asked
a friend to buy the sculpture for him, up to a certain price, and then Peter paid his friend
for the sculpture he had always admired. What ethical principle has Peter breached?
A. Duty of Loyalty
B. None, since the client has died and he bought it fairly at a public auction.
C. Self-Dealing
D. Conflict of Interest - Correct Answers -C. Self-Dealing
A beneficiary feels close to you and shares personal information unrelated to the trust.
The beneficiary asks you not to share this information with the individual co-trustee, who
is a family member. Which of the following is your MOST appropriate response?
A. Keep the beneficiaries' information confidential.
B. Tell the co-trustee the information.
C. Do not tell the co-trustee, but document the information in the file.
D. Tell the co-trustee only if asked specifically. - Correct Answers -A. Keep the
beneficiaries' information confidential.
Your firm offers several non-registered Hedge funds which are wholly owned,
managed, and operated by your firm. You are looking to invest funds from one of the
irrevocable trusts on which your firm acts as sole-trustee. Which of the flowing is MOST
likely to be true?
