CANNON TRUST SCHOOL II EXAM 2026/2027 | Certified
Questions & Verified Answers | Advanced Trust
Administration, Fiduciary Law, Trust Taxation,
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Graded
SECTION 1: FIDUCIARY LAW & TRUSTEE DUTIES (Questions 1–
25)
Q1. 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 [CORRECT]
C. May purchase trust property if approved by one beneficiary
D. Can retain a corporate opportunity that overlaps with trust interests
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.
Correct Answer: B
Q2. 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 [CORRECT]
,C. Duty to inform only
D. Duty to delegate only
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.
Correct Answer: B
Q3. 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 [CORRECT]
C. Current income yield only
D. Historical performance of similar investments
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.
Correct Answer: B
Q4. 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
[CORRECT]
C. Favor remainder beneficiaries to preserve principal
D. Distribute all income immediately to avoid accumulation
,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.
Correct Answer: B
Q5. 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 [CORRECT]
C. Only the duty of care
D. The duty to delegate
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.
Correct Answer: B
Q6. Under UTC §813, a trustee's duty to inform and report requires:
A. Annual accounting only to remainder beneficiaries
B. Keeping beneficiaries reasonably informed and providing annual accountings
[CORRECT]
C. Disclosure only upon court order
D. Reporting only to the grantor
Rationale: UTC §813 requires trustees to keep beneficiaries reasonably informed of
trust administration and provide annual accountings of receipts, disbursements, and
trust property. This applies to all beneficiaries, not just remainder beneficiaries (A) or
the grantor (D). Court order (C) is not required for basic reporting.
Correct Answer: B
, Q7. The "no further inquiry" rule means that once a trustee accepts the trust:
A. The trustee must investigate the validity of the trust instrument
B. The trustee generally accepts the trust as valid unless suspicious circumstances
exist [CORRECT]
C. The trustee may challenge the grantor's capacity after acceptance
D. The trustee must question every provision of the trust
Rationale: Under common law and UTC principles, a trustee who accepts the trust
generally cannot later challenge its validity unless suspicious circumstances existed at
acceptance. The trustee is bound by the trust terms unless they are illegal or
impossible to perform. This rule promotes finality and reliance on trust documents.
Correct Answer: B
Q8. A corporate trustee is held to which standard of care?
A. The same standard as an individual trustee
B. A higher standard due to special skills and expertise [CORRECT]
C. A lower standard due to institutional constraints
D. No standard if the trust instrument specifies otherwise
Rationale: UTC §804 states that a trustee with special skills or expertise (such as a
corporate trustee) is held to a higher standard of care. Individual trustees are held to
the standard of a reasonably prudent person, but professional trustees must exercise
their specialized skills. The trust instrument cannot eliminate the duty of care entirely
(D).
Correct Answer: B
Q9. Under UTC §706, a trustee may be removed by the court for:
Questions & Verified Answers | Advanced Trust
Administration, Fiduciary Law, Trust Taxation,
Investments & Estate Planning | Pass Guaranteed - A+
Graded
SECTION 1: FIDUCIARY LAW & TRUSTEE DUTIES (Questions 1–
25)
Q1. 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 [CORRECT]
C. May purchase trust property if approved by one beneficiary
D. Can retain a corporate opportunity that overlaps with trust interests
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.
Correct Answer: B
Q2. 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 [CORRECT]
,C. Duty to inform only
D. Duty to delegate only
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.
Correct Answer: B
Q3. 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 [CORRECT]
C. Current income yield only
D. Historical performance of similar investments
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.
Correct Answer: B
Q4. 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
[CORRECT]
C. Favor remainder beneficiaries to preserve principal
D. Distribute all income immediately to avoid accumulation
,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.
Correct Answer: B
Q5. 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 [CORRECT]
C. Only the duty of care
D. The duty to delegate
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.
Correct Answer: B
Q6. Under UTC §813, a trustee's duty to inform and report requires:
A. Annual accounting only to remainder beneficiaries
B. Keeping beneficiaries reasonably informed and providing annual accountings
[CORRECT]
C. Disclosure only upon court order
D. Reporting only to the grantor
Rationale: UTC §813 requires trustees to keep beneficiaries reasonably informed of
trust administration and provide annual accountings of receipts, disbursements, and
trust property. This applies to all beneficiaries, not just remainder beneficiaries (A) or
the grantor (D). Court order (C) is not required for basic reporting.
Correct Answer: B
, Q7. The "no further inquiry" rule means that once a trustee accepts the trust:
A. The trustee must investigate the validity of the trust instrument
B. The trustee generally accepts the trust as valid unless suspicious circumstances
exist [CORRECT]
C. The trustee may challenge the grantor's capacity after acceptance
D. The trustee must question every provision of the trust
Rationale: Under common law and UTC principles, a trustee who accepts the trust
generally cannot later challenge its validity unless suspicious circumstances existed at
acceptance. The trustee is bound by the trust terms unless they are illegal or
impossible to perform. This rule promotes finality and reliance on trust documents.
Correct Answer: B
Q8. A corporate trustee is held to which standard of care?
A. The same standard as an individual trustee
B. A higher standard due to special skills and expertise [CORRECT]
C. A lower standard due to institutional constraints
D. No standard if the trust instrument specifies otherwise
Rationale: UTC §804 states that a trustee with special skills or expertise (such as a
corporate trustee) is held to a higher standard of care. Individual trustees are held to
the standard of a reasonably prudent person, but professional trustees must exercise
their specialized skills. The trust instrument cannot eliminate the duty of care entirely
(D).
Correct Answer: B
Q9. Under UTC §706, a trustee may be removed by the court for:
