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Cannon Trust School II Exam Actual Exam
2026/2027 – Complete Exam-Style Questions
with Detailed Rationales | 100% Verified |
Pass Guaranteed – A+ Graded
[SECTION 1: Fiduciary Law & Trustee Responsibilities — Questions 1-25]
Q1: Under the Uniform Trust Code (UTC), which of the following scenarios best describes a
breach of the trustee's Duty of Loyalty?
A. A trustee invests 50% of the trust assets in high-risk junk bonds because the trust document
specifies a high-risk investment objective.
B. A trustee hires an independent investment advisor to manage the trust portfolio and pays them
a reasonable fee.
C. A trustee sells a trust-owned commercial property to themselves at fair market value without
disclosing the conflict of interest to the beneficiaries.
D. A trustee purchases shares of a mutual fund for the trust that is managed by a company in
which the trustee owns 500 shares of stock.
Correct Answer: C
Rationale: The Duty of Loyalty requires a trustee to administer the trust solely in the interests of
the beneficiaries and prohibits self-dealing. Selling trust property to oneself, even at fair market
value, is a prohibited transaction unless specifically authorized by the trust instrument or court
approval, and full disclosure is mandatory but does not cure the conflict without authorization.
Option A is permissible as the trustee is following specific trust terms; Option B is permissible
under the UTC's delegation powers; Option D is generally acceptable as a trivial indirect interest,
provided the investment is prudent.
Q2: Which of the following fiduciary duties requires a trustee to balance the interests of the
current income beneficiary with those of the remainder beneficiaries?
A. Duty of Loyalty
B. Duty to Inform and Account
,2
C. Duty of Impartiality
D. Duty to Preserve Trust Property
Correct Answer: C
Rationale: The Duty of Impartiality dictates that a trustee must act impartially in administering
the trust, giving due regard to the beneficiaries' respective interests. This is crucial when
balancing the income beneficiary's desire for current yield against the remainder beneficiary's
desire for growth and preservation of principal. The Duty of Loyalty relates to conflicts of
interest, the Duty to Inform relates to communication, and the Duty to Preserve relates to asset
protection, not the interplay between different classes of beneficiaries.
Q3: According to the Uniform Prudent Investor Act (UPIA), a trustee may delegate investment
and management functions to an agent. Which of the following is a requirement regarding this
delegation?
A. The trustee must issue a press release announcing the delegation.
B. The trustee may delegate only if all beneficiaries consent in writing.
C. The trustee must exercise reasonable care, skill, and caution in selecting the agent and
establishing the scope of the delegation.
D. Once delegated, the trustee is relieved of all liability for the agent's actions.
Correct Answer: C
Rationale: The UPIA permits delegation but does not relieve the trustee of fiduciary
responsibility; the trustee must exercise prudent care in the selection, oversight, and periodic
review of the agent. The trustee remains liable for the agent's actions unless they prudently
selected and monitored the agent. Options A and B are not requirements under the Act, and
Option D is incorrect because the trustee retains a duty to monitor the delegate.
Q4: A trustee is managing a trust that includes a vacant piece of land. To comply with the Duty
of Invest, the trustee should:
A. Determine if the land is producing income or if it should be sold or leased to make it
productive, consistent with the purposes of the trust.
B. Immediately subdivide the land into residential lots to maximize short-term gain.
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C. Retain the land indefinitely regardless of market conditions because the settlor originally
owned it.
D. Develop the land into a commercial shopping center without a feasibility study.
Correct Answer: A
Rationale: The Duty to Invest requires trustees to make trust assets productive. Holding non-
productive assets like vacant land may violate the Prudent Investor Rule unless the land is being
held for a specific trust purpose (e.g., future use by a beneficiary) or there is a prudent plan to
sell or lease it. Option B suggests a speculative action without analysis, Option C violates the
duty of prudence, and Option D violates the duty of prudent investigation.
Q5: Which of the following statements accurately describes the "prudent investor rule" compared
to the old "prudent man rule"?
A. The prudent man rule focuses on the safety of capital only, while the prudent investor rule
focuses on the total return of the entire portfolio.
B. The prudent investor rule requires a portfolio perspective and considers risk and return
objectives, while the prudent man rule often looked at investments in isolation.
C. The prudent investor rule prohibits all investments in derivatives, while the prudent man rule
allowed them.
D. The prudent investor rule requires trustees to invest only in government bonds, whereas the
prudent man rule allowed corporate stocks.
Correct Answer: B
Rationale: The modern Prudent Investor Rule (UPIA) emphasizes modern portfolio theory,
requiring trustees to evaluate investments in the context of the total portfolio and the trade-off
between risk and return. The older Prudent Man Rule often led to a "list" approach where
specific assets were deemed imprudent regardless of the portfolio context. Option C is incorrect
because derivatives are permitted if prudent; Option D is incorrect because both rules allowed for
equities depending on the context.
Q6: A trustee discovers that the previous trustee commingled trust assets with personal assets.
What is the current trustee's primary obligation under the Duty to Segregate Trust Assets?
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A. Immediately trace and recover the commingled assets to restore the trust property.
B. File a lawsuit against the beneficiaries to recover the costs of tracing.
C. Ignore the commingling if it happened more than three years ago due to the statute of
limitations.
D. Deposit the mixed funds into the trustee's personal account to earn interest for the trust.
Correct Answer: A
Rationale: The Duty to Segregate requires trust assets to be kept separate from the trustee's
personal assets. If commingling occurs, the trustee must act to trace and recover the trust
property to prevent unjust enrichment and protect the beneficiaries' interests. Options B, C, and
D represent failures of fiduciary duty.
Q7: Under the Uniform Trust Code, what is the standard for a trustee to determine the
appropriate timing and amount of distributions to a beneficiary?
A. Distributions must be made quarterly regardless of the beneficiary's needs.
B. Distributions are strictly limited to the income generated by the trust assets.
C. The trustee must consider the terms of the trust, the beneficiary's standard of living, and the
beneficiary's other resources.
D. The trustee must distribute 5% of the trust corpus annually to avoid depletion.
Correct Answer: C
Rationale: Trustees possess discretionary powers (if granted by the trust) or mandatory standards
that require them to consider various factors, including the trust terms, the beneficiary's current
needs, health, education, maintenance, and support (HEMS), and other financial resources
known to the trustee. Options A and D are arbitrary rules not found in the UTC, and Option B
applies only to "income" beneficiaries in specific trust types, not discretionary standards.
Q8: Which of the following powers is typically considered an "express power" granted by the
trust instrument?
A. The power to sell trust property.
C. The power to invade the principal for a beneficiary's college education.
Cannon Trust School II Exam Actual Exam
2026/2027 – Complete Exam-Style Questions
with Detailed Rationales | 100% Verified |
Pass Guaranteed – A+ Graded
[SECTION 1: Fiduciary Law & Trustee Responsibilities — Questions 1-25]
Q1: Under the Uniform Trust Code (UTC), which of the following scenarios best describes a
breach of the trustee's Duty of Loyalty?
A. A trustee invests 50% of the trust assets in high-risk junk bonds because the trust document
specifies a high-risk investment objective.
B. A trustee hires an independent investment advisor to manage the trust portfolio and pays them
a reasonable fee.
C. A trustee sells a trust-owned commercial property to themselves at fair market value without
disclosing the conflict of interest to the beneficiaries.
D. A trustee purchases shares of a mutual fund for the trust that is managed by a company in
which the trustee owns 500 shares of stock.
Correct Answer: C
Rationale: The Duty of Loyalty requires a trustee to administer the trust solely in the interests of
the beneficiaries and prohibits self-dealing. Selling trust property to oneself, even at fair market
value, is a prohibited transaction unless specifically authorized by the trust instrument or court
approval, and full disclosure is mandatory but does not cure the conflict without authorization.
Option A is permissible as the trustee is following specific trust terms; Option B is permissible
under the UTC's delegation powers; Option D is generally acceptable as a trivial indirect interest,
provided the investment is prudent.
Q2: Which of the following fiduciary duties requires a trustee to balance the interests of the
current income beneficiary with those of the remainder beneficiaries?
A. Duty of Loyalty
B. Duty to Inform and Account
,2
C. Duty of Impartiality
D. Duty to Preserve Trust Property
Correct Answer: C
Rationale: The Duty of Impartiality dictates that a trustee must act impartially in administering
the trust, giving due regard to the beneficiaries' respective interests. This is crucial when
balancing the income beneficiary's desire for current yield against the remainder beneficiary's
desire for growth and preservation of principal. The Duty of Loyalty relates to conflicts of
interest, the Duty to Inform relates to communication, and the Duty to Preserve relates to asset
protection, not the interplay between different classes of beneficiaries.
Q3: According to the Uniform Prudent Investor Act (UPIA), a trustee may delegate investment
and management functions to an agent. Which of the following is a requirement regarding this
delegation?
A. The trustee must issue a press release announcing the delegation.
B. The trustee may delegate only if all beneficiaries consent in writing.
C. The trustee must exercise reasonable care, skill, and caution in selecting the agent and
establishing the scope of the delegation.
D. Once delegated, the trustee is relieved of all liability for the agent's actions.
Correct Answer: C
Rationale: The UPIA permits delegation but does not relieve the trustee of fiduciary
responsibility; the trustee must exercise prudent care in the selection, oversight, and periodic
review of the agent. The trustee remains liable for the agent's actions unless they prudently
selected and monitored the agent. Options A and B are not requirements under the Act, and
Option D is incorrect because the trustee retains a duty to monitor the delegate.
Q4: A trustee is managing a trust that includes a vacant piece of land. To comply with the Duty
of Invest, the trustee should:
A. Determine if the land is producing income or if it should be sold or leased to make it
productive, consistent with the purposes of the trust.
B. Immediately subdivide the land into residential lots to maximize short-term gain.
,3
C. Retain the land indefinitely regardless of market conditions because the settlor originally
owned it.
D. Develop the land into a commercial shopping center without a feasibility study.
Correct Answer: A
Rationale: The Duty to Invest requires trustees to make trust assets productive. Holding non-
productive assets like vacant land may violate the Prudent Investor Rule unless the land is being
held for a specific trust purpose (e.g., future use by a beneficiary) or there is a prudent plan to
sell or lease it. Option B suggests a speculative action without analysis, Option C violates the
duty of prudence, and Option D violates the duty of prudent investigation.
Q5: Which of the following statements accurately describes the "prudent investor rule" compared
to the old "prudent man rule"?
A. The prudent man rule focuses on the safety of capital only, while the prudent investor rule
focuses on the total return of the entire portfolio.
B. The prudent investor rule requires a portfolio perspective and considers risk and return
objectives, while the prudent man rule often looked at investments in isolation.
C. The prudent investor rule prohibits all investments in derivatives, while the prudent man rule
allowed them.
D. The prudent investor rule requires trustees to invest only in government bonds, whereas the
prudent man rule allowed corporate stocks.
Correct Answer: B
Rationale: The modern Prudent Investor Rule (UPIA) emphasizes modern portfolio theory,
requiring trustees to evaluate investments in the context of the total portfolio and the trade-off
between risk and return. The older Prudent Man Rule often led to a "list" approach where
specific assets were deemed imprudent regardless of the portfolio context. Option C is incorrect
because derivatives are permitted if prudent; Option D is incorrect because both rules allowed for
equities depending on the context.
Q6: A trustee discovers that the previous trustee commingled trust assets with personal assets.
What is the current trustee's primary obligation under the Duty to Segregate Trust Assets?
, 4
A. Immediately trace and recover the commingled assets to restore the trust property.
B. File a lawsuit against the beneficiaries to recover the costs of tracing.
C. Ignore the commingling if it happened more than three years ago due to the statute of
limitations.
D. Deposit the mixed funds into the trustee's personal account to earn interest for the trust.
Correct Answer: A
Rationale: The Duty to Segregate requires trust assets to be kept separate from the trustee's
personal assets. If commingling occurs, the trustee must act to trace and recover the trust
property to prevent unjust enrichment and protect the beneficiaries' interests. Options B, C, and
D represent failures of fiduciary duty.
Q7: Under the Uniform Trust Code, what is the standard for a trustee to determine the
appropriate timing and amount of distributions to a beneficiary?
A. Distributions must be made quarterly regardless of the beneficiary's needs.
B. Distributions are strictly limited to the income generated by the trust assets.
C. The trustee must consider the terms of the trust, the beneficiary's standard of living, and the
beneficiary's other resources.
D. The trustee must distribute 5% of the trust corpus annually to avoid depletion.
Correct Answer: C
Rationale: Trustees possess discretionary powers (if granted by the trust) or mandatory standards
that require them to consider various factors, including the trust terms, the beneficiary's current
needs, health, education, maintenance, and support (HEMS), and other financial resources
known to the trustee. Options A and D are arbitrary rules not found in the UTC, and Option B
applies only to "income" beneficiaries in specific trust types, not discretionary standards.
Q8: Which of the following powers is typically considered an "express power" granted by the
trust instrument?
A. The power to sell trust property.
C. The power to invade the principal for a beneficiary's college education.
