Cannon Trust School II Exam | Complete Certified
Questions and Correct Verified Answers | 2025/2026
Edition
Cannon Trust School II Comprehensive Exam Review | 2025/2026 Updated Edition | Includes the full set
of actual exam questions with correct, verified answers and detailed explanations | Covers Advanced Trust
Administration, Fiduciary Law, Taxation of Trusts, Trust Investments, Estate Planning Strategies, and
Ethical & Regulatory Considerations.
Introduction
This document contains the complete graded A+ set of 200 questions and answers for the Cannon Trust
School II exam, updated for the 2025/2026 testing cycle. Each answer is fully certified correct, with
detailed reasoning supported by current federal and state trust laws, IRS tax codes, fiduciary best
practices, and Cannon Trust curriculum materials.
Answer Format
Each question is followed by the correct answer in bold green, accompanied by a comprehensive
explanation, relevant statutory citations, and practical application notes to prepare you for both the exam
and real-world fiduciary responsibilities.
1. What is the primary fiduciary duty of a trustee under the Uniform Trust Code
(UTC)?
a) To maximize trust income
b) To act in the best interests of the beneficiaries
c) To invest solely in conservative assets
d) To distribute all trust assets annually
b) To act in the best interests of the beneficiaries
Rationale: UTC §801 mandates that trustees administer trusts in good faith, aligning with the trust’s
purpose and the beneficiaries’ best interests, balancing impartiality and prudence.
2. Which IRS form is used to report income from a revocable living trust?
a) Form 1041
b) Form 1040
c) Form 706
d) Form 709
b) Form 1040
Rationale: Revocable living trusts are grantor trusts (IRC §671-679), and their income is reported on the
grantor’s Form 1040, not Form 1041, which applies to irrevocable trusts.
3. Under the Prudent Investor Rule, what must a trustee consider when making
investment decisions?
a) Only the income needs of the current beneficiary
b) Risk, return, and the needs of all beneficiaries
,c) The grantor’s personal investment preferences
d) Maximizing short-term gains
b) Risk, return, and the needs of all beneficiaries
Rationale: The Uniform Prudent Investor Act (UPIA) requires trustees to balance risk, return,
diversification, and the needs of both income and remainder beneficiaries.
4. What is the purpose of a Crummey power in a trust?
a) To allow discretionary distributions
b) To qualify contributions for the gift tax exclusion
c) To revoke the trust
d) To appoint a successor trustee
b) To qualify contributions for the gift tax exclusion
Rationale: Crummey powers provide beneficiaries a temporary right to withdraw contributions,
qualifying them for the annual gift tax exclusion under IRC §2503(b).
5. What is the federal estate tax exemption amount for 2025?
a) $5.45 million
b) $13.61 million
c) $10 million
d) $15 million
b) $13.61 million
Rationale: The IRS adjusts the estate tax exemption annually for inflation. For 2025, the exemption is
$13.61 million per individual (IRC §2010).
6. Under the UTC, what is required for a trustee to delegate investment functions?
a) Beneficiary approval
b) Prudent selection and monitoring of the agent
c) Court authorization
d) Grantor’s written consent
b) Prudent selection and monitoring of the agent
Rationale: UTC §807 allows delegation of investment functions if the trustee exercises due care in
selecting and monitoring the agent, per UPIA standards.
7. Which type of trust is used to minimize estate taxes for married couples?
a) Revocable living trust
b) Charitable remainder trust
c) AB trust
d) Special needs trust
c) AB trust
Rationale: An AB trust splits into a marital (A) and bypass (B) trust upon the first spouse’s death,
maximizing estate tax exemptions for both spouses (IRC §2010).
8. What is the fiduciary standard for managing trust investments?
a) Maximize income regardless of risk
b) Act with prudence, skill, and diligence
c) Follow the grantor’s instructions exclusively
d) Avoid all investments with market risk
b) Act with prudence, skill, and diligence
Rationale: The UPIA requires trustees to manage investments with prudence, skill, and diligence,
considering risk and return objectives.
,9. Which IRS form is used to report estate taxes?
a) Form 1040
b) Form 1041
c) Form 706
d) Form 709
c) Form 706
Rationale: Form 706 is used to report federal estate taxes for estates exceeding the exemption amount
(IRC §6018).
10. What is the purpose of a special needs trust?
a) To provide for a disabled beneficiary without affecting eligibility for public benefits
b) To minimize estate taxes
c) To fund charitable organizations
d) To distribute assets to minors immediately
a) To provide for a disabled beneficiary without affecting eligibility for public benefits
Rationale: A special needs trust supports disabled beneficiaries while preserving eligibility for programs
like Medicaid and SSI (42 U.S.C. §1396p).
11. Under the UTC, when can a trustee terminate a trust?
a) At the trustee’s discretion
b) If the trust’s purpose is fulfilled or becomes uneconomical
c) Only with court approval
d) Upon request of the grantor
b) If the trust’s purpose is fulfilled or becomes uneconomical
Rationale: UTC §411 allows termination if the trust’s purpose is fulfilled or if it’s uneconomical (e.g.,
assets below a certain threshold), often with beneficiary consent.
12. What is the generation-skipping transfer (GST) tax exemption for 2025?
a) $5 million
b) $13.61 million
c) $10 million
d) $15 million
b) $13.61 million
Rationale: The GST tax exemption is aligned with the estate tax exemption, set at $13.61 million for 2025
(IRC §2631).
13. Which principle governs a trustee’s duty to inform beneficiaries?
a) Duty of loyalty
b) Duty to inform and report
c) Duty of impartiality
d) Duty of prudence
b) Duty to inform and report
Rationale: UTC §813 requires trustees to keep beneficiaries reasonably informed about the trust’s
administration and provide periodic reports.
14. What is the annual gift tax exclusion amount for 2025?
a) $15,000
b) $18,000
c) $20,000
d) $25,000
, b) $18,000
Rationale: The IRS adjusts the annual gift tax exclusion for inflation; for 2025, it is $18,000 per recipient
(IRC §2503(b)).
15. What is a charitable remainder trust (CRT)?
a) A trust that distributes income to a charity annually
b) A trust that provides income to non-charitable beneficiaries with remainder to charity
c) A trust that holds assets for minors
d) A trust that avoids all taxes
b) A trust that provides income to non-charitable beneficiaries with remainder to charity
Rationale: A CRT provides income to non-charitable beneficiaries for a term, with the remainder passing
to a charity, offering tax benefits (IRC §664).
16. What is the trustee’s duty of impartiality?
a) To favor income beneficiaries over remainder beneficiaries
b) To treat all beneficiaries fairly and equitably
c) To invest only in low-risk assets
d) To follow the grantor’s instructions without discretion
b) To treat all beneficiaries fairly and equitably
Rationale: UTC §803 requires trustees to act impartially, balancing the interests of income and remainder
beneficiaries.
17. Which IRS form is used to report gift taxes?
a) Form 1040
b) Form 1041
c) Form 706
d) Form 709
d) Form 709
Rationale: Form 709 is used to report taxable gifts and allocate GST exemptions (IRC §6019).
18. What is the purpose of a qualified terminable interest property (QTIP) trust?
a) To provide for a disabled beneficiary
b) To qualify for the marital deduction while controlling remainder distribution
c) To fund charitable organizations
d) To avoid income taxes
b) To qualify for the marital deduction while controlling remainder distribution
Rationale: A QTIP trust qualifies for the marital deduction under IRC §2056(b)(7), providing income to
the surviving spouse while directing the remainder to other beneficiaries.
19. Under the UTC, what is required for a trust to be valid?
a) A minimum asset value of $100,000
b) A definite beneficiary or lawful purpose
c) A corporate trustee
d) Annual court approval
b) A definite beneficiary or lawful purpose
Rationale: UTC §402 requires a valid trust to have a definite beneficiary or a lawful purpose, along with a
trustee and trust property.
20. What is the tax treatment of a grantor trust?
a) Taxed as a separate entity
Questions and Correct Verified Answers | 2025/2026
Edition
Cannon Trust School II Comprehensive Exam Review | 2025/2026 Updated Edition | Includes the full set
of actual exam questions with correct, verified answers and detailed explanations | Covers Advanced Trust
Administration, Fiduciary Law, Taxation of Trusts, Trust Investments, Estate Planning Strategies, and
Ethical & Regulatory Considerations.
Introduction
This document contains the complete graded A+ set of 200 questions and answers for the Cannon Trust
School II exam, updated for the 2025/2026 testing cycle. Each answer is fully certified correct, with
detailed reasoning supported by current federal and state trust laws, IRS tax codes, fiduciary best
practices, and Cannon Trust curriculum materials.
Answer Format
Each question is followed by the correct answer in bold green, accompanied by a comprehensive
explanation, relevant statutory citations, and practical application notes to prepare you for both the exam
and real-world fiduciary responsibilities.
1. What is the primary fiduciary duty of a trustee under the Uniform Trust Code
(UTC)?
a) To maximize trust income
b) To act in the best interests of the beneficiaries
c) To invest solely in conservative assets
d) To distribute all trust assets annually
b) To act in the best interests of the beneficiaries
Rationale: UTC §801 mandates that trustees administer trusts in good faith, aligning with the trust’s
purpose and the beneficiaries’ best interests, balancing impartiality and prudence.
2. Which IRS form is used to report income from a revocable living trust?
a) Form 1041
b) Form 1040
c) Form 706
d) Form 709
b) Form 1040
Rationale: Revocable living trusts are grantor trusts (IRC §671-679), and their income is reported on the
grantor’s Form 1040, not Form 1041, which applies to irrevocable trusts.
3. Under the Prudent Investor Rule, what must a trustee consider when making
investment decisions?
a) Only the income needs of the current beneficiary
b) Risk, return, and the needs of all beneficiaries
,c) The grantor’s personal investment preferences
d) Maximizing short-term gains
b) Risk, return, and the needs of all beneficiaries
Rationale: The Uniform Prudent Investor Act (UPIA) requires trustees to balance risk, return,
diversification, and the needs of both income and remainder beneficiaries.
4. What is the purpose of a Crummey power in a trust?
a) To allow discretionary distributions
b) To qualify contributions for the gift tax exclusion
c) To revoke the trust
d) To appoint a successor trustee
b) To qualify contributions for the gift tax exclusion
Rationale: Crummey powers provide beneficiaries a temporary right to withdraw contributions,
qualifying them for the annual gift tax exclusion under IRC §2503(b).
5. What is the federal estate tax exemption amount for 2025?
a) $5.45 million
b) $13.61 million
c) $10 million
d) $15 million
b) $13.61 million
Rationale: The IRS adjusts the estate tax exemption annually for inflation. For 2025, the exemption is
$13.61 million per individual (IRC §2010).
6. Under the UTC, what is required for a trustee to delegate investment functions?
a) Beneficiary approval
b) Prudent selection and monitoring of the agent
c) Court authorization
d) Grantor’s written consent
b) Prudent selection and monitoring of the agent
Rationale: UTC §807 allows delegation of investment functions if the trustee exercises due care in
selecting and monitoring the agent, per UPIA standards.
7. Which type of trust is used to minimize estate taxes for married couples?
a) Revocable living trust
b) Charitable remainder trust
c) AB trust
d) Special needs trust
c) AB trust
Rationale: An AB trust splits into a marital (A) and bypass (B) trust upon the first spouse’s death,
maximizing estate tax exemptions for both spouses (IRC §2010).
8. What is the fiduciary standard for managing trust investments?
a) Maximize income regardless of risk
b) Act with prudence, skill, and diligence
c) Follow the grantor’s instructions exclusively
d) Avoid all investments with market risk
b) Act with prudence, skill, and diligence
Rationale: The UPIA requires trustees to manage investments with prudence, skill, and diligence,
considering risk and return objectives.
,9. Which IRS form is used to report estate taxes?
a) Form 1040
b) Form 1041
c) Form 706
d) Form 709
c) Form 706
Rationale: Form 706 is used to report federal estate taxes for estates exceeding the exemption amount
(IRC §6018).
10. What is the purpose of a special needs trust?
a) To provide for a disabled beneficiary without affecting eligibility for public benefits
b) To minimize estate taxes
c) To fund charitable organizations
d) To distribute assets to minors immediately
a) To provide for a disabled beneficiary without affecting eligibility for public benefits
Rationale: A special needs trust supports disabled beneficiaries while preserving eligibility for programs
like Medicaid and SSI (42 U.S.C. §1396p).
11. Under the UTC, when can a trustee terminate a trust?
a) At the trustee’s discretion
b) If the trust’s purpose is fulfilled or becomes uneconomical
c) Only with court approval
d) Upon request of the grantor
b) If the trust’s purpose is fulfilled or becomes uneconomical
Rationale: UTC §411 allows termination if the trust’s purpose is fulfilled or if it’s uneconomical (e.g.,
assets below a certain threshold), often with beneficiary consent.
12. What is the generation-skipping transfer (GST) tax exemption for 2025?
a) $5 million
b) $13.61 million
c) $10 million
d) $15 million
b) $13.61 million
Rationale: The GST tax exemption is aligned with the estate tax exemption, set at $13.61 million for 2025
(IRC §2631).
13. Which principle governs a trustee’s duty to inform beneficiaries?
a) Duty of loyalty
b) Duty to inform and report
c) Duty of impartiality
d) Duty of prudence
b) Duty to inform and report
Rationale: UTC §813 requires trustees to keep beneficiaries reasonably informed about the trust’s
administration and provide periodic reports.
14. What is the annual gift tax exclusion amount for 2025?
a) $15,000
b) $18,000
c) $20,000
d) $25,000
, b) $18,000
Rationale: The IRS adjusts the annual gift tax exclusion for inflation; for 2025, it is $18,000 per recipient
(IRC §2503(b)).
15. What is a charitable remainder trust (CRT)?
a) A trust that distributes income to a charity annually
b) A trust that provides income to non-charitable beneficiaries with remainder to charity
c) A trust that holds assets for minors
d) A trust that avoids all taxes
b) A trust that provides income to non-charitable beneficiaries with remainder to charity
Rationale: A CRT provides income to non-charitable beneficiaries for a term, with the remainder passing
to a charity, offering tax benefits (IRC §664).
16. What is the trustee’s duty of impartiality?
a) To favor income beneficiaries over remainder beneficiaries
b) To treat all beneficiaries fairly and equitably
c) To invest only in low-risk assets
d) To follow the grantor’s instructions without discretion
b) To treat all beneficiaries fairly and equitably
Rationale: UTC §803 requires trustees to act impartially, balancing the interests of income and remainder
beneficiaries.
17. Which IRS form is used to report gift taxes?
a) Form 1040
b) Form 1041
c) Form 706
d) Form 709
d) Form 709
Rationale: Form 709 is used to report taxable gifts and allocate GST exemptions (IRC §6019).
18. What is the purpose of a qualified terminable interest property (QTIP) trust?
a) To provide for a disabled beneficiary
b) To qualify for the marital deduction while controlling remainder distribution
c) To fund charitable organizations
d) To avoid income taxes
b) To qualify for the marital deduction while controlling remainder distribution
Rationale: A QTIP trust qualifies for the marital deduction under IRC §2056(b)(7), providing income to
the surviving spouse while directing the remainder to other beneficiaries.
19. Under the UTC, what is required for a trust to be valid?
a) A minimum asset value of $100,000
b) A definite beneficiary or lawful purpose
c) A corporate trustee
d) Annual court approval
b) A definite beneficiary or lawful purpose
Rationale: UTC §402 requires a valid trust to have a definite beneficiary or a lawful purpose, along with a
trustee and trust property.
20. What is the tax treatment of a grantor trust?
a) Taxed as a separate entity
