CANNON CTFA TEST PAPER 2026 QUESTIONS AND
SOLUTIONS GRADED A+
✔✔A value manager's portfolio would be expected to:
A. have a PE ratio higher then the market.
B. sell at a premium to the S&P.
C. have a Beta equal to the market or less.
D. have a yield lower than the market. - ✔✔C. have a Beta equal to the market or less.
✔✔Dr. Jones purchases a $5,000,000 life insurance policy. On the advice of her
attorney, she transfers all incidents of ownership in the policy to a n irrevocable trust for
the benefit of her children the following year. Dr. Jones dies two years later, and the
insurance proceeds are paid to the trust. What are the estate tax consequences to Dr.
Jones' estate?
A. Insurance proceeds are included in her estate.
B. Insurance proceeds are not included in her estate.
C. Amount of insurance premiums paid is included in her estate.
D. Cash value of the policy immediately prior to death is included in her estate. - ✔✔A.
Insurance proceeds are included in her estate.
✔✔A fiduciary can elect a fiscal year, other than a calendar year, for income tax
reporting purposes for which of the following types of arrangements?
I. Estates
II. Charitable Remainder Trusts
III. Charitable Lead Trusts
IV. Fully Charitable Trusts
A. I only
B. I & IV only
C. II & III only
D. I, II & IV only - ✔✔B. I & IV only
✔✔Which of the following BEST describes an ESTATE as an income tax reporting
entity?
A. It begins at the court appointment of the executor and lasts for two years.
B. It begins when Letters Testamentary are issued and lasts until the majority of the
assets are distributed.
C. It begins at date of death and lasts for the period of administration.
D. It begins when all of the assets have been gathered and lasts for the period of
administration. - ✔✔C. It begins at date of death and lasts for the period of
administration.
,✔✔Which of the following best describes the duty to inform remainder beneficiaries of a
revocable trust while the settlor is alive and competent?
A. There is duty to inform beneficiaries of significant changes in their beneficiary status.
B. The duty to inform does not apply to revocable trusts while the settlor is alive and
competent.
C. There is a duty to inform all beneficiaries of the existence of the trust.
D. There is a duty to permit beneficiaries to inspect trust documents, records and
property holdings. - ✔✔B. The duty to inform does not apply to revocable trusts while
the settlor is alive and competent.
✔✔One of your bank's largest depositors tells you that he does not trust lawyers, and
asks you to prepare a simple will for him, leaving everything to his wife. You should tell
him that:
A. you will be happy to prepare his will, but he most likely needs more that a simple will
B. you cannot prepare his will because to do so constitutes the unauthorized practice of
law
C. it is against the policy of the bank to prepare the legal documents, but you will copy
some pages from a form book that he can use as a guide
D. you do not have a law degree; however, you will refer him to another trust officer who
has a law degree - ✔✔B. you cannot prepare his will because to do so constitutes the
unauthorized practice of law
✔✔Which of the following BEST describes the communication responsibilities of a
trustee with regard to discretionary decisions?
A. None. A trustee has complete authority to act and therefore does not need to report
discretionary decisions to the beneficiaries of the trust.
B. Statements only. A trustee must report, o a timely basis, transactions which have
occurred in the account on a statement.
C. More than just statements. A trustee should communicate before the fact any
transaction which will materially affect the interests of the beneficiaries in addition to the
regular reporting done on statements.
D. Prior approval of discretionary transactions. A trustee must seek prior approval of all
discretionary decisions from the beneficiaries. - ✔✔C. More than just statements. A
trustee should communicate before the fact any transaction which will materially affect
the interests of the beneficiaries in addition to the regular reporting done on statements.
✔✔With respect to its own shares, the corporate trustee does NOT violate the duty of
loyalty if it does which of the following?
A. Votes the proxies of shares owned by the trust
B. Purchases the stock at the direction of a co-trustee
C. Purchases the stock of an affiliate at the direction of a co-trustee
, D. Retains the stock pursuant to an authorization in the trust instrument - ✔✔D. Retains
the stock pursuant to an authorization in the trust instrument
✔✔Declared dividends are paid to stockholders registered on the books of the
corporation on or before the:
A. dividend date.
B. record date.
C. payment date.
D. declaration date. - ✔✔B. record date.
✔✔Your client creates a Grantor Retained Annuity Trust that will last until the sooner of
his death or 7 years. If he survives the term, the trust property will pass outright to his
children. Your client uses all of his unified credit creating the trust. He dies in year 6 of
the trust. How much of the trust's current fair market value will be included in his estate?
A. None of it
B. 1/7 of it
C. 6/7 of it
D. The portion needed to yield the annuity amount using the Section 7520 rate
applicable on date of death - ✔✔D. The portion needed to yield the annuity amount
using the Section 7520 rate applicable on date of death
✔✔The conveyance "O to A for life and then to B" creates which of the following sets of
interests?
A. Life estate for A and a remainder for B.
B. Life estate for A and a reversion for B.
C. Fee simple interest for A and a remainder for B.
D. Fee simple interest for A and a reversion for B. - ✔✔A. Life estate for A and a
remainder for B.
✔✔The most important factor in the long-term performance of equity (stock)
investments is:
A. the economy
B. interest rates.
C. the industry of the corporation.
D. the management of the corporation. - ✔✔D. the management of the corporation.
✔✔Cyclical changes in the business cycle would most likely have the greatest effect on
a:
A. utility company.
B. food retailer.
SOLUTIONS GRADED A+
✔✔A value manager's portfolio would be expected to:
A. have a PE ratio higher then the market.
B. sell at a premium to the S&P.
C. have a Beta equal to the market or less.
D. have a yield lower than the market. - ✔✔C. have a Beta equal to the market or less.
✔✔Dr. Jones purchases a $5,000,000 life insurance policy. On the advice of her
attorney, she transfers all incidents of ownership in the policy to a n irrevocable trust for
the benefit of her children the following year. Dr. Jones dies two years later, and the
insurance proceeds are paid to the trust. What are the estate tax consequences to Dr.
Jones' estate?
A. Insurance proceeds are included in her estate.
B. Insurance proceeds are not included in her estate.
C. Amount of insurance premiums paid is included in her estate.
D. Cash value of the policy immediately prior to death is included in her estate. - ✔✔A.
Insurance proceeds are included in her estate.
✔✔A fiduciary can elect a fiscal year, other than a calendar year, for income tax
reporting purposes for which of the following types of arrangements?
I. Estates
II. Charitable Remainder Trusts
III. Charitable Lead Trusts
IV. Fully Charitable Trusts
A. I only
B. I & IV only
C. II & III only
D. I, II & IV only - ✔✔B. I & IV only
✔✔Which of the following BEST describes an ESTATE as an income tax reporting
entity?
A. It begins at the court appointment of the executor and lasts for two years.
B. It begins when Letters Testamentary are issued and lasts until the majority of the
assets are distributed.
C. It begins at date of death and lasts for the period of administration.
D. It begins when all of the assets have been gathered and lasts for the period of
administration. - ✔✔C. It begins at date of death and lasts for the period of
administration.
,✔✔Which of the following best describes the duty to inform remainder beneficiaries of a
revocable trust while the settlor is alive and competent?
A. There is duty to inform beneficiaries of significant changes in their beneficiary status.
B. The duty to inform does not apply to revocable trusts while the settlor is alive and
competent.
C. There is a duty to inform all beneficiaries of the existence of the trust.
D. There is a duty to permit beneficiaries to inspect trust documents, records and
property holdings. - ✔✔B. The duty to inform does not apply to revocable trusts while
the settlor is alive and competent.
✔✔One of your bank's largest depositors tells you that he does not trust lawyers, and
asks you to prepare a simple will for him, leaving everything to his wife. You should tell
him that:
A. you will be happy to prepare his will, but he most likely needs more that a simple will
B. you cannot prepare his will because to do so constitutes the unauthorized practice of
law
C. it is against the policy of the bank to prepare the legal documents, but you will copy
some pages from a form book that he can use as a guide
D. you do not have a law degree; however, you will refer him to another trust officer who
has a law degree - ✔✔B. you cannot prepare his will because to do so constitutes the
unauthorized practice of law
✔✔Which of the following BEST describes the communication responsibilities of a
trustee with regard to discretionary decisions?
A. None. A trustee has complete authority to act and therefore does not need to report
discretionary decisions to the beneficiaries of the trust.
B. Statements only. A trustee must report, o a timely basis, transactions which have
occurred in the account on a statement.
C. More than just statements. A trustee should communicate before the fact any
transaction which will materially affect the interests of the beneficiaries in addition to the
regular reporting done on statements.
D. Prior approval of discretionary transactions. A trustee must seek prior approval of all
discretionary decisions from the beneficiaries. - ✔✔C. More than just statements. A
trustee should communicate before the fact any transaction which will materially affect
the interests of the beneficiaries in addition to the regular reporting done on statements.
✔✔With respect to its own shares, the corporate trustee does NOT violate the duty of
loyalty if it does which of the following?
A. Votes the proxies of shares owned by the trust
B. Purchases the stock at the direction of a co-trustee
C. Purchases the stock of an affiliate at the direction of a co-trustee
, D. Retains the stock pursuant to an authorization in the trust instrument - ✔✔D. Retains
the stock pursuant to an authorization in the trust instrument
✔✔Declared dividends are paid to stockholders registered on the books of the
corporation on or before the:
A. dividend date.
B. record date.
C. payment date.
D. declaration date. - ✔✔B. record date.
✔✔Your client creates a Grantor Retained Annuity Trust that will last until the sooner of
his death or 7 years. If he survives the term, the trust property will pass outright to his
children. Your client uses all of his unified credit creating the trust. He dies in year 6 of
the trust. How much of the trust's current fair market value will be included in his estate?
A. None of it
B. 1/7 of it
C. 6/7 of it
D. The portion needed to yield the annuity amount using the Section 7520 rate
applicable on date of death - ✔✔D. The portion needed to yield the annuity amount
using the Section 7520 rate applicable on date of death
✔✔The conveyance "O to A for life and then to B" creates which of the following sets of
interests?
A. Life estate for A and a remainder for B.
B. Life estate for A and a reversion for B.
C. Fee simple interest for A and a remainder for B.
D. Fee simple interest for A and a reversion for B. - ✔✔A. Life estate for A and a
remainder for B.
✔✔The most important factor in the long-term performance of equity (stock)
investments is:
A. the economy
B. interest rates.
C. the industry of the corporation.
D. the management of the corporation. - ✔✔D. the management of the corporation.
✔✔Cyclical changes in the business cycle would most likely have the greatest effect on
a:
A. utility company.
B. food retailer.
