CANNON TRUST SCHOOL I EXAM – LATEST 2026 UPDATE NEWEST
EXAM PREPARATION WITH COMPLETE QUESTIONS AND CORRECT
ANSWERS WITH RATIONALES | ALREADY GRADED A+|
|BRAND NEW VERSION!!
SECTION 1: TRUST FUNDAMENTALS & DEFINITIONS (Questions 1–40)
Question 1
The person who creates a trust is called the:
A) Trustee
B) Beneficiary
C) Settlor (or grantor)
D) Fiduciary
Answer: C) Settlor (or grantor)
Rationale: The settlor (also called grantor or trustor) is the person who
transfers property into a trust and creates the trust instrument. They are
the originator of the trust relationship.
Question 2
The person or entity who holds legal title to trust property and manages it
for the beneficiaries is the:
A) Settlor
B) Beneficiary
C) Trustee
D) Guardian
Answer: C) Trustee
Rationale: The trustee is the legal owner of the trust assets and has the
duty to manage, invest, and distribute those assets according to the trust
terms. The trustee is the central figure in trust administration.
Question 3
The person who receives the benefits of a trust is the:
1
,A) Settlor
B) Trustee
C) Beneficiary
D) Fiduciary
Answer: C) Beneficiary
Rationale: A beneficiary is the person (or entity) for whose benefit the trust
was created. Beneficiaries have equitable interests in the trust property and
can enforce the trustee's duties.
Question 4
Which type of trust is specifically designed to provide for a person with
disabilities without disqualifying them from government benefits?
A) Revocable living trust
B) Testamentary trust
C) Special needs trust (supplemental needs trust)
D) Charitable trust
Answer: C) Special needs trust (supplemental needs trust)
Rationale: Special needs trusts are structured to hold assets for the benefit
of a disabled beneficiary while preserving their eligibility for means-tested
government programs like Medicaid and SSI. The trust assets are not counted
as the beneficiary's own resources.
Question 5
A trust that is created to last for the lifetime of one or more individuals
and then distribute the remainder to charity is a:
A) Charitable lead trust
B) Charitable remainder trust
C) Irrevocable life insurance trust
D) Dynasty trust
Answer: B) Charitable remainder trust
Rationale: A charitable remainder trust (CRT) pays income to a non-charitable
2
,beneficiary for life or a term of years, and the remainder interest goes to a
qualified charity. This provides income to the donor or other beneficiaries
while ultimately benefiting charity.
Question 6
The legal document that establishes a trust is called the:
A) Will
B) Trust deed or trust agreement
C) Contract
D) Power of attorney
Answer: B) Trust deed or trust agreement
Rationale: The trust instrument (trust deed or agreement) is the written
document that sets forth the terms, conditions, and purposes of the trust.
It names the settlor, trustee, beneficiaries, and specifies how the property
is to be managed and distributed.
Question 7
Which of the following is NOT a party to a trust?
A) Settlor
B) Trustee
C) Beneficiary
D) Executor
Answer: D) Executor
Rationale: An executor is a person named in a will to administer the probate
estate. While an executor may also be a trustee, the executor role is not a
trust party. The three indispensable parties to a trust are the settlor,
trustee, and beneficiary.
Question 8
A trust that is used to hold life insurance policies and remove the proceeds
3
, from the insured's estate is a:
A) Irrevocable life insurance trust (ILIT)
B) Revocable living trust
C) Qualified terminable interest property trust (QTIP)
D) Generation-skipping trust
Answer: A) Irrevocable life insurance trust (ILIT)
Rationale: An ILIT is an irrevocable trust that owns life insurance policies.
Because the insured has no ownership rights, the death benefit is excluded
from the insured's estate for estate tax purposes, while still providing
liquidity to heirs.
Question 9
The duty of a trustee to act with "prudence" means the trustee must:
A) Take no risks with trust assets
B) Act with the care, skill, and caution that a prudent person would use in
managing another's property
C) Always consult an attorney before making any investment
D) Invest only in government bonds
Answer: B) Act with the care, skill, and caution that a prudent person would
use in managing another's property
Rationale: The prudent person rule is the standard of care for trustees. It
requires the trustee to manage the trust assets with the same degree of care,
skill, and caution that a reasonable, prudent person would exercise in
handling their own affairs, with the goal of preserving and growing the trust
property.
Question 10
A trust that terminates upon the death of the settlor and distributes the
assets to the settlor's named beneficiaries is most likely a:
A) Testamentary trust
B) Revocable living trust that is not fully funded
C) Revocable living trust that becomes irrevocable at death
4
EXAM PREPARATION WITH COMPLETE QUESTIONS AND CORRECT
ANSWERS WITH RATIONALES | ALREADY GRADED A+|
|BRAND NEW VERSION!!
SECTION 1: TRUST FUNDAMENTALS & DEFINITIONS (Questions 1–40)
Question 1
The person who creates a trust is called the:
A) Trustee
B) Beneficiary
C) Settlor (or grantor)
D) Fiduciary
Answer: C) Settlor (or grantor)
Rationale: The settlor (also called grantor or trustor) is the person who
transfers property into a trust and creates the trust instrument. They are
the originator of the trust relationship.
Question 2
The person or entity who holds legal title to trust property and manages it
for the beneficiaries is the:
A) Settlor
B) Beneficiary
C) Trustee
D) Guardian
Answer: C) Trustee
Rationale: The trustee is the legal owner of the trust assets and has the
duty to manage, invest, and distribute those assets according to the trust
terms. The trustee is the central figure in trust administration.
Question 3
The person who receives the benefits of a trust is the:
1
,A) Settlor
B) Trustee
C) Beneficiary
D) Fiduciary
Answer: C) Beneficiary
Rationale: A beneficiary is the person (or entity) for whose benefit the trust
was created. Beneficiaries have equitable interests in the trust property and
can enforce the trustee's duties.
Question 4
Which type of trust is specifically designed to provide for a person with
disabilities without disqualifying them from government benefits?
A) Revocable living trust
B) Testamentary trust
C) Special needs trust (supplemental needs trust)
D) Charitable trust
Answer: C) Special needs trust (supplemental needs trust)
Rationale: Special needs trusts are structured to hold assets for the benefit
of a disabled beneficiary while preserving their eligibility for means-tested
government programs like Medicaid and SSI. The trust assets are not counted
as the beneficiary's own resources.
Question 5
A trust that is created to last for the lifetime of one or more individuals
and then distribute the remainder to charity is a:
A) Charitable lead trust
B) Charitable remainder trust
C) Irrevocable life insurance trust
D) Dynasty trust
Answer: B) Charitable remainder trust
Rationale: A charitable remainder trust (CRT) pays income to a non-charitable
2
,beneficiary for life or a term of years, and the remainder interest goes to a
qualified charity. This provides income to the donor or other beneficiaries
while ultimately benefiting charity.
Question 6
The legal document that establishes a trust is called the:
A) Will
B) Trust deed or trust agreement
C) Contract
D) Power of attorney
Answer: B) Trust deed or trust agreement
Rationale: The trust instrument (trust deed or agreement) is the written
document that sets forth the terms, conditions, and purposes of the trust.
It names the settlor, trustee, beneficiaries, and specifies how the property
is to be managed and distributed.
Question 7
Which of the following is NOT a party to a trust?
A) Settlor
B) Trustee
C) Beneficiary
D) Executor
Answer: D) Executor
Rationale: An executor is a person named in a will to administer the probate
estate. While an executor may also be a trustee, the executor role is not a
trust party. The three indispensable parties to a trust are the settlor,
trustee, and beneficiary.
Question 8
A trust that is used to hold life insurance policies and remove the proceeds
3
, from the insured's estate is a:
A) Irrevocable life insurance trust (ILIT)
B) Revocable living trust
C) Qualified terminable interest property trust (QTIP)
D) Generation-skipping trust
Answer: A) Irrevocable life insurance trust (ILIT)
Rationale: An ILIT is an irrevocable trust that owns life insurance policies.
Because the insured has no ownership rights, the death benefit is excluded
from the insured's estate for estate tax purposes, while still providing
liquidity to heirs.
Question 9
The duty of a trustee to act with "prudence" means the trustee must:
A) Take no risks with trust assets
B) Act with the care, skill, and caution that a prudent person would use in
managing another's property
C) Always consult an attorney before making any investment
D) Invest only in government bonds
Answer: B) Act with the care, skill, and caution that a prudent person would
use in managing another's property
Rationale: The prudent person rule is the standard of care for trustees. It
requires the trustee to manage the trust assets with the same degree of care,
skill, and caution that a reasonable, prudent person would exercise in
handling their own affairs, with the goal of preserving and growing the trust
property.
Question 10
A trust that terminates upon the death of the settlor and distributes the
assets to the settlor's named beneficiaries is most likely a:
A) Testamentary trust
B) Revocable living trust that is not fully funded
C) Revocable living trust that becomes irrevocable at death
4
