CANNON CTFA EVALUATION EXAM 2026 QUESTIONS
AND SOLUTIONS GRADED A+
✔✔H's will provides that upon his death, $1 million will be held in a trust for the benefit
of his wife, W. This trust provides that W will receive all of the trust income and will
receive distributions of principal int he form of an annuity for her lifetime. At W's death,
the remaining trust assets will be distributed to a designated charity. H's executor
intends to make a "QTIP" election for this trust. Will the legacy to the trust, or any part
thereof, be deductible by H's estate, or if so, why?
A. Yes, the entire $1 million will qualify for the estate tax marital and charitable
deductions.
B. No, none of the $1 million will qualify for the estate tax marital and charitable
deductions.
C. Yes, the entire $1 million will qualify for the estate tax marital deduction.
D. Yes, the value of W's income interest will qualify for the marital deduction; the
remainder will not qualify for any deduction. - ✔✔C. Yes, the entire $1 million will qualify
for the estate tax marital deduction.
✔✔H makes a gift of property to a trust for the benefit of his children. If H serves as a
trustee, what limitations, if any, should be placed on his distribution powers in order to
avoid adverse gift and estate tax consequences?
A. H's power to make distributions should be limited by ascertainable standards such as
health, support and education.
B. No limitations are required.
C. H should be prohibited from participating in making any distributions.
D. H's power to make distributions should be limited to those required to discharge his
legal obligation to support his children. - ✔✔A. H's power to make distributions should
be limited by ascertainable standards such as health, support and education.
✔✔Which of the following statements about a QTIP trust is false?
A. An executor has the ability to elect, partially elect, or not elect to qualify for QTIP
treatment any part of the marital trust property.
B. The spouse-beneficiary need not have the ability to control the ultimate disposition of
the trust property.
C. The grantor-spouse's GST exemption cannot be allocated to trust property.
D. To have a valid QTIP interest, the spouse must be entitled to all of the net income
from the trust property. - ✔✔C. The grantor-spouse's GST exemption cannot be
allocated to trust property.
✔✔Which of the following is an advantage of a QTIP trust over the life estate/general
power of appointment trust?
,A. The surviving spouse will not be entitled to all of the income from the trust.
B. The decedent spouse can control the ultimate disposition of the trust property.
C. The decedent's estate will receive a marital deduction for the property transferred to
the trust.
D. The surviving spouse can withdraw trust property during her life to make gifts to
descendants. - ✔✔B. The decent spouse can control the ultimate disposition of the trust
property.
✔✔Payments made directly to an educational institution for tuition on behalf of
grandchildren are:
A. subject to gift tax to the extent they exceed the annual exclusion.
B. subject to generation-skipping tax.
C. not subject to gift tax.
D. not taxable gifts and are not subject to generation-skipping tax. - ✔✔D. not taxable
gifts and are not subject to generation-skipping tax.
✔✔If you own a 7% Bond maturing in twenty years, and long term rates go to 10%:
A. your bond will sell at a premium.
B. your bond will be called.
C. the annual interest payments on your bond will decline.
D. your bond will sell at a discount. - ✔✔D. your bond will sell at a discount.
✔✔A customer, who is terminally ill, wishes to make several gifts by check to friends
before she dies. Since these individuals are not beneficiaries under her will, she is
anxious to have the gifts completed before her death. Which of the following should
represent your advice to her?
A. If the checks are dated before she dies, they will constitute completed gifts
B. If the gifts are not made before her death, they can be made by her executor based
on her verbally expressed intent
C. If the checks are delivered to the recipients before her death, they are considered to
be completed gifts
D. The checks must be deposited for cashing at the bank before her death in order to
qualify as completed gifts - ✔✔D. The checks must be deposited for cashing at the bank
before her death in order to qualify as completed gifts
✔✔Shareholders must receive financial statements from investment companies:
A. monthly
B. quarterly
C. semi-annually
D. annually - ✔✔C. semi-annually
, ✔✔The "conduit theory" for a regulated investment company says which of the
following?
A. the flow of revenues should be unimpeded by redemptions.
B. investment income flows to the investor after taxes.
C. the investor and the fund are taxed as a single entity.
D. the investment income is taxable to the investor only. - ✔✔D. the investment income
is taxable to the investor only.
✔✔If interest rates are expected to decline, which of the following bonds would offer the
greatest potential for price appreciation?
A. Treasury bond with duration of 15 years
B. Treasury bond with duration of 12 years
C. Treasury bond maturing in 10 years
D. Treasury bond maturing in 15 years - ✔✔A. Treasury bond with duration of 15 years
✔✔Absent any relevant language in the instrument, under common law a trust is
considered to be which of the following?
A. irrevocable and not amendable
B. irrevocable but amendable
C. revocable but not amendable
D. revocable and amendable - ✔✔A. irrevocable and not amendable
✔✔In a Qualified Terminable Interest Property (QTIP) marital trust, the surviving spouse
may be given various powers of appointment. Which of the following may be included
for the surviving spouse to have maximum control available as a beneficiary of a QTIP
while retaining election options for the executor?
A. only limited powers of appointment
B. limited powers and the 5x5 power
C. only general powers of appointment, except the 5x5 power
D. general powers including the 5x5 power - ✔✔B. limited powers and the 5x5 power
✔✔At the death of a decendent, the decedent's will creates a trust paying all income to
the surviving spouse and permits principal encroachment, at the trustee's discretion, for
benefit of the surviving spouse and/or children during the surviving spouse's lifetime.
Which of the following is true of this arrangement?
A. The trust can qualify for the QTIP election.
B. The trust can not qualify for the QTIP election.
C. The trust will not be included in the gross estate of the decendent.
D. The trust is invalid since a will cannot creat a trust. - ✔✔B. The trust can not qualify
for the QTIP election.
AND SOLUTIONS GRADED A+
✔✔H's will provides that upon his death, $1 million will be held in a trust for the benefit
of his wife, W. This trust provides that W will receive all of the trust income and will
receive distributions of principal int he form of an annuity for her lifetime. At W's death,
the remaining trust assets will be distributed to a designated charity. H's executor
intends to make a "QTIP" election for this trust. Will the legacy to the trust, or any part
thereof, be deductible by H's estate, or if so, why?
A. Yes, the entire $1 million will qualify for the estate tax marital and charitable
deductions.
B. No, none of the $1 million will qualify for the estate tax marital and charitable
deductions.
C. Yes, the entire $1 million will qualify for the estate tax marital deduction.
D. Yes, the value of W's income interest will qualify for the marital deduction; the
remainder will not qualify for any deduction. - ✔✔C. Yes, the entire $1 million will qualify
for the estate tax marital deduction.
✔✔H makes a gift of property to a trust for the benefit of his children. If H serves as a
trustee, what limitations, if any, should be placed on his distribution powers in order to
avoid adverse gift and estate tax consequences?
A. H's power to make distributions should be limited by ascertainable standards such as
health, support and education.
B. No limitations are required.
C. H should be prohibited from participating in making any distributions.
D. H's power to make distributions should be limited to those required to discharge his
legal obligation to support his children. - ✔✔A. H's power to make distributions should
be limited by ascertainable standards such as health, support and education.
✔✔Which of the following statements about a QTIP trust is false?
A. An executor has the ability to elect, partially elect, or not elect to qualify for QTIP
treatment any part of the marital trust property.
B. The spouse-beneficiary need not have the ability to control the ultimate disposition of
the trust property.
C. The grantor-spouse's GST exemption cannot be allocated to trust property.
D. To have a valid QTIP interest, the spouse must be entitled to all of the net income
from the trust property. - ✔✔C. The grantor-spouse's GST exemption cannot be
allocated to trust property.
✔✔Which of the following is an advantage of a QTIP trust over the life estate/general
power of appointment trust?
,A. The surviving spouse will not be entitled to all of the income from the trust.
B. The decedent spouse can control the ultimate disposition of the trust property.
C. The decedent's estate will receive a marital deduction for the property transferred to
the trust.
D. The surviving spouse can withdraw trust property during her life to make gifts to
descendants. - ✔✔B. The decent spouse can control the ultimate disposition of the trust
property.
✔✔Payments made directly to an educational institution for tuition on behalf of
grandchildren are:
A. subject to gift tax to the extent they exceed the annual exclusion.
B. subject to generation-skipping tax.
C. not subject to gift tax.
D. not taxable gifts and are not subject to generation-skipping tax. - ✔✔D. not taxable
gifts and are not subject to generation-skipping tax.
✔✔If you own a 7% Bond maturing in twenty years, and long term rates go to 10%:
A. your bond will sell at a premium.
B. your bond will be called.
C. the annual interest payments on your bond will decline.
D. your bond will sell at a discount. - ✔✔D. your bond will sell at a discount.
✔✔A customer, who is terminally ill, wishes to make several gifts by check to friends
before she dies. Since these individuals are not beneficiaries under her will, she is
anxious to have the gifts completed before her death. Which of the following should
represent your advice to her?
A. If the checks are dated before she dies, they will constitute completed gifts
B. If the gifts are not made before her death, they can be made by her executor based
on her verbally expressed intent
C. If the checks are delivered to the recipients before her death, they are considered to
be completed gifts
D. The checks must be deposited for cashing at the bank before her death in order to
qualify as completed gifts - ✔✔D. The checks must be deposited for cashing at the bank
before her death in order to qualify as completed gifts
✔✔Shareholders must receive financial statements from investment companies:
A. monthly
B. quarterly
C. semi-annually
D. annually - ✔✔C. semi-annually
, ✔✔The "conduit theory" for a regulated investment company says which of the
following?
A. the flow of revenues should be unimpeded by redemptions.
B. investment income flows to the investor after taxes.
C. the investor and the fund are taxed as a single entity.
D. the investment income is taxable to the investor only. - ✔✔D. the investment income
is taxable to the investor only.
✔✔If interest rates are expected to decline, which of the following bonds would offer the
greatest potential for price appreciation?
A. Treasury bond with duration of 15 years
B. Treasury bond with duration of 12 years
C. Treasury bond maturing in 10 years
D. Treasury bond maturing in 15 years - ✔✔A. Treasury bond with duration of 15 years
✔✔Absent any relevant language in the instrument, under common law a trust is
considered to be which of the following?
A. irrevocable and not amendable
B. irrevocable but amendable
C. revocable but not amendable
D. revocable and amendable - ✔✔A. irrevocable and not amendable
✔✔In a Qualified Terminable Interest Property (QTIP) marital trust, the surviving spouse
may be given various powers of appointment. Which of the following may be included
for the surviving spouse to have maximum control available as a beneficiary of a QTIP
while retaining election options for the executor?
A. only limited powers of appointment
B. limited powers and the 5x5 power
C. only general powers of appointment, except the 5x5 power
D. general powers including the 5x5 power - ✔✔B. limited powers and the 5x5 power
✔✔At the death of a decendent, the decedent's will creates a trust paying all income to
the surviving spouse and permits principal encroachment, at the trustee's discretion, for
benefit of the surviving spouse and/or children during the surviving spouse's lifetime.
Which of the following is true of this arrangement?
A. The trust can qualify for the QTIP election.
B. The trust can not qualify for the QTIP election.
C. The trust will not be included in the gross estate of the decendent.
D. The trust is invalid since a will cannot creat a trust. - ✔✔B. The trust can not qualify
for the QTIP election.
