Cannon Trust School Level II Practice Exam

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• A grandparent establishes an irrevocable trust with income to her child for his life and then to his children. She funds the trust with assets valued at $4,000,000 and allocates $1,000,000 of her lifetime GST exemption. The inclusion ratio for this trust is:
• Remedies for breach by a trustee (self-dealing, etc.)?
• Open-end and closed-end investment companies differ in their:
• Explain the use of ascertainable standards for beneficiary distributions and limitations in special-needs planning.
• Which of the following is true about a QTIP Trust?
• Which term describes a share of an estate allocated before the residuary distribution?
• Which of the following is a mandatory characteristic of a QDOT?
• Which statement about investing in precious metals is not true?
• A company will redeem (call) its bonds if interest rates do what?
• Qualified terminable interest property does not qualify for the marital deduction unless the executor does which of the following?
• Under spendthrift provisions, which types of claims are sometimes allowed to reach the beneficiary despite the provision?
• What defines ascertainable beneficiaries and why are they important in a trust?
• What is a power of appointment in a trust, and what classifications are common?
• Which statement best describes how fiduciary duties interact with the trust instrument in handling distributions?
• Holding a general lifetime power of appointment over trust property has what income tax consequence?
• A trust grants a noncumulative annual withdrawal right to the beneficiary equal to the greater of $5,000 or 5% of the trust corpus. Which tax implication applies?
• Which acronym stands for Domestic Irrevocable Non-Grantor trust?
• What remedies exist when a trustee commingles assets or fails to maintain proper records?
• What is a charitable lead trust (CLT) and how does it operate?
• How does a testamentary trust differ from an inter vivos trust in funding and creation?
• Which of the following is NOT a form of real estate investment?
• Which of the following best defines a Silent Trust?
• What is an irrevocable life insurance trust (ILIT) and its typical purpose?
• Husband is not a U.S. citizen but is a resident alien. Wife is a naturalized citizen. Husband dies leaving everything to his wife outright. How much of a marital deduction will his estate have?
• What is the purpose of a credit shelter trust in estate planning?
• Which of the following is NOT a requirement of a QTIP trust?
• The maximum amount that an individual can shelter from federal estate tax (other than the marital or charitable deductions) is which of the following?
• Which remedy might a court order to ensure proper accounting and record-keeping by a trustee when mismanagement is suspected?
• A client is looking to establish an irrevocable trust that provides income to his spouse for life, then income to his children for life, with the remainder to grandchildren. This is an example of which?
• Using the same asset set, what is the value of his gross estate for estate tax purposes?
• Which bond issue is secured by the income from a bridge or toll road?
• A power that allows appointment to the holder or the holder's estate is an example of which power type?
• Which of the following is a required characteristic of a Qualified Domestic Trust (QDOT) for estate tax purposes?
• Which of the following is characteristic of a gift under the uniform gifts to minors act?
• Which statement describes an irrevocable life insurance trust (ILIT) regarding ownership of life insurance?
• Which of the following is NOT one of the four essential elements required to create an express trust?
• CLT is the abbreviation for which type of trust?
• GST tax applicability is conditioned on the middle generation not being taxed by gift or estate taxes in that generation.
• Which of the following statements about a general power of appointment is true?
• What is the purpose of allocating GST exemptions in trust planning?
• To qualify for the annual gift tax exclusion, the gift can NOT be made in which of the following forms?
• In a trust, which distribution approach characterizes the trustee's freedom to decide whether to make distributions?
• What is the purpose of laddering bond maturities when interest rates are expected to rise?
• A grantor's spouse has a power to appoint in her will that references this power in the grantor's trust. This is an example of which power?
• Stock basis question: The stock was purchased by the parent at $50 per share, appreciated to $75 at the parent’s death, and declined to $65 one year later. What is the client’s tax basis in the stock?
• If a decedent owned a life insurance policy on their own life with the spouse named as beneficiary, how is the policy treated for the decedent's gross estate for estate tax purposes?
• What does QTIP stand for in trust terminology?
• What is the difference between a resulting trust and a constructive trust?
• A QTIP marital trust created for the benefit of a surviving spouse provides that the spouse receives all income and trust principal for health and support. A QTIP election was made. Which statement about inclusion of the trust in the surviving spouse's gross estate is correct?
• Which of the following is NOT a requirement of a Pet Trust under the Uniform Trust Code?
• Which statement about the reverse QTIP election under IRC§2652(a)(3) is TRUE?
• What does the prudent investor rule require trustees to do?
• A transferor funds a trust for the benefit of her grandchildren. This is an example of which type of transfer under GST rules?
• What is a pour-over trust and when is it used?
• Identify key features and tax treatment of charitable trusts compared to private trusts.
• Your client does not live in a community property state and does not elect gift splitting. This year, she made the following gifts of separate property: $53,000 to her son to help buy a house, $60,000 to her spouse for a boat, $40,000 to her church as a donation, $75,000 (current market value) of jewelry to her daughter (cost basis of $24,000). What is the amount of her taxable gifts for 2026?
• Under the Cy Pres doctrine, if a charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful, what may the court do?
• Which of the following is MANDATORY to qualify the general power of appointment (GPA) marital deduction trust?
• Which of the following statements correctly states the generation-skipping tax exemption for 2026?
• For a house valued at 400,000 owned as joint tenancy with a spouse, the amount included in the decedent's gross estate for estate tax purposes is:
• What is the duty of impartiality in trusts with multiple beneficiaries and uneven interests?
• Decedent's will states that, upon the death of my husband, property shall be distributed to my siblings and their issue as he shall so appoint. If he fails to appoint, then in equal shares to my nieces and nephews then living. This is an example of which type of power?
• A credit shelter bypass trust is funded with the full exemption amount with the wife as income beneficiary and the children as remainder beneficiaries. What is the primary purpose?
• Who is responsible for paying the GST tax on a taxable distribution under GST rules?
• Which statement best describes the fiduciary duty of loyalty in a trust?
• Which statement about investing in precious metals is not true?
• What is the primary effect of a no-contest clause in a will or trust?
• Compare a private foundation with a charitable remainder trust and explain their tax implications.
• In order to establish the Deceased Spouse's Unused Exemption Amount (DSUEA) for the surviving spouse, which of the following must be true at the first spouse's death?
• The market price of shares of a closed-end investment company is:
• In 2026, what is the annual gift tax exclusion per donee for gifts of present interest?
• Gifts to which of the following trusts will NOT qualify as a gift of present interest for the annual exclusion?
• In a scenario with a 28% federal bracket and 6% state bracket, which investment would yield the highest after-tax income?
• Describe the difference between discretionary and non-discretionary distributions.
• If a donor makes a 23,000 present-interest gift to a minor in 2026, what is the amount subject to tax after applying the annual exclusion?
• Which investment would provide the best after-tax return in the same bracket scenario if options include a 6.5% U.S. government bond?
• Which statement is true about ETFs relative to traditional open-end funds?
• Which of the following transfers qualifies for the unlimited gift tax exclusion when paid directly to an institution?
• Which of the following statements is TRUE about transfer taxes in 2026?
• Father's will creates a testamentary trust for Son paying all income to Son during Son's lifetime. Son has a power to appoint, in his will, the trust property to a class consisting of his issue. What is the estate tax consequence when Son dies?
• Which of the following gifts is not subject to gift tax in 2026?
• A client owns a $200,000 home in joint tenancy with his wife, a $15,000 car in his own name, an $8,000 CD in his name alone, and a $100,000 life insurance policy (wife is beneficiary). What is the value of his probate estate?
• Which item is NOT typically included in a standard trust instrument?
• Which element ensures there is enforceability by identifying beneficiaries or a charitable purpose?
• Which of the following is NOT an advantage of investing in precious metals?
• Which of the following can NOT be disposed of through a provision in a decedent's will?
• Compared to bonds, money market investments typically possess which characteristics?
• A trust created in another state to save state income taxes on undistributed earnings is best known as which of the following?
• Which municipal bond type is secured by the issuer's general taxing power?
• How does DNI influence tax treatment when distributions are made from a trust?
• Which of the following statements best reflects the inclusion ratio when a portion of a trust is allocated to skip beneficiaries and the rest to non-skip beneficiaries?
• The price an investor will pay today when purchasing an open-end investment company is determined from:
• In a case where a decedent owned a home as joint tenancy with rights of survivorship with the spouse and a rental property as joint tenancy with rights of survivorship with the son, the cost basis to the beneficiaries is:
• Which of the following is typical of a marital deduction trust?
• Under the Generation-Skipping Transfer (GST) tax rules, who is responsible for filing the GST tax return on a taxable termination?
• Which statement best describes the GST tax in the context of trusts and skip-generation transfers?
• In a taxable termination scenario, when is the GST exemption allocated?
• What type of funding formula is described by the language 'The numerator of the fraction shall be ... The denominator of the fraction shall be'?
• To maximize both spouses use of the generation skipping exemption in an optimal marital deduction plan, what type of marital bequest must be used?
• Which statement about residuary gifts is accurate?
• RLT is the abbreviation for which type of trust?
• The annual gift tax exclusion applies per donee, not per donor.
• Describe typical criteria used to determine reasonable trustee compensation.
• What is the trustee's approach to investment risk under the prudent investor rule?
• The intention in creating a silent trust is generally to do any of the following EXCEPT:
• ETFs differ from open-ended mutual funds on all of the following EXCEPT:
• Which statement best differentiates residuary gifts from specific gifts?
• Which statement best defines an Incentive Trust?
• The duration of a life estate is BEST described as which of the following?
• Which statement best defines an express trust?
• Allocation of GST exemption for an irrevocable trust subject to a taxable termination is made by which of the following?
• What is the function of a spendthrift provision?
• Natural resource equity prices have historically been sensitive to all of the following EXCEPT:
• GSTT transfers occur under which circumstance?
• Open-end and closed-end investment companies primarily differ in which aspect?
• The Spousal Lifetime Access Trust is abbreviated as which acronym?
• For zero-coupon bonds, the tax liability is determined by which of the following?
• Which of the following would not qualify for the federal estate tax marital deduction?
• What is the prohibition on self-dealing and how does it protect beneficiaries?
• In GST tax terms, the inclusion ratio represents which of the following?
• Define a QTIP trust and its typical use in estate planning?
• If a donor makes four gifts of 19,000 to four different donees in 2026, what is the total amount excluded by the annual gift tax exclusion?
• What evidentiary requirements typically apply to a land trust?
• Which is the best definition of the 'applicable rate' for GSTT?
• In 2026, the annual gift tax exclusion is:
• What is the term for the language that directs that the residuary estate be added to a trust under a trust agreement?
• Which rule prohibits a trustee from using trust assets for personal gain or conflicts of interest?
• Which statement best differentiates revocable trusts from irrevocable trusts in terms of control and tax treatment?
• Explain the role of tracing in remedies for misappropriated trust assets.
• Describe the trustee’s duties when managing a trust with minor beneficiaries?
• In 2026, who is responsible for filing the GST tax return and paying the GST tax on a taxable termination?
• Which records should a trustee maintain for accountability purposes?
• IDGT stands for which type of trust?
• Which bond type is typically exempt from federal income tax?
• What is decanting and how can it affect beneficiaries’ rights?
• Your 50-year-old client has a $17,000,000 estate and asks about a bypass trust funded with the full exemption amount, with the wife as income beneficiary and the children as remainder beneficiaries. Which type of trust would you recommend?
• Since the Gift and Estate Tax rates are unified which statement best describes the relative advantages of gift versus estate taxes?
• Which statement best describes prudent diversification in trustee investment management?
• If a grandparent's trust pays $50,000 directly to a grandchild's university for tuition, this payment is best categorized as which?
• Name the primary duties a trustee owes to protect and preserve trust principal.
• Mary and Bill own a house as joint tenants with rights of survivorship. When Mary dies, which of the following best describes the result?
• True or false: Zero-coupon bonds accrue taxable income each year even though no cash is received until maturity.
• What is a defining characteristic of joint tenancy with right of survivorship?
• In GST terms, a skip person is at least how many generations younger than the grantor?
• Which beneficiary qualifies for the generation-skipping tax predeceased ancestor exception?
• If decedent dies with a taxable estate but the will does not specify from which source the estate tax will be paid, which statutes determine the payment source?
• GST transfer scope: It applies to property passing two or more generations below the grantor.
• Explain accumulation vs distribution of income in a trust and its tax implications.
• In 2026, the GST exemption amount is?
• How can bankruptcy affect trust assets, particularly those with spendthrift protections?
• Under the prudent investor rule, which practice is least appropriate?
• Which statement about lifetime taxable gifts is TRUE?
• If an individual makes annual gifts starting in 2026 and gifts $250,000 to his son in that year, what is the first tax year for which he will have to file a gift tax return?
• GST rules apply to property passing two or more generations below the grantor.
• How do charitable lead trusts differ from charitable remainder trusts in terms of income distribution?
• Which statement best describes the purpose of a QTIP trust in estate planning?
• Which feature of investing in precious metals is a characteristic?
• Bonds that can be traded in for stock are known as:
• Which statement best describes joint tenancy with rights of survivorship?
• Which of the following best defines a Blind Trust?
• Which statement properly describes how a QTIP election affects inclusion in the gross estate?
• What is a trust instrument and what essential provisions does it typically include?
• With a '5 by 5' withdrawal power and a trust corpus of $100,000, what is the maximum annual withdrawal?
• To qualify a QTIP property for the marital deduction, the executor must do which of the following?
• Dividend distributions from mutual funds are:
• Which statement about the application of the annual gift tax exclusion is correct?
• If investors expect interest rates to increase, they will:
• In 2026, a parent funds a Crummey trust with $57,000 ($19,000 per child) for three children. Which statement about the gift tax annual exclusion is correct?
• Which statement best describes a charitable lead trust (CLT) timing?
• In estate planning, the residuary estate refers to which portion?
• What is fiduciary accounting and its purpose in trust administration?
• Which statement best describes the rate at which the GST tax is applied?
• Under the 'conduit' theory, taxes payable on dividends and interest distributed by a regulated investment company are paid:
• An irrevocable trust created to receive taxable gifts from one spouse to another which utilizes the Applicable Exclusion Amount (AEA) of the donor, thus 'freezing' the gift and grandfathering the amount should tax credits reduce in the future with the donee spouse being a potential beneficiary. Which of the following does this arrangement describe?
• In a pro rata fractional formula, which trust is frozen during administration prior to funding?
• Cy pres concept: when is it used in charitable trusts?
• Describe termination by merger of legal and equitable title in a trust.
• In 2026 a married couple wishes to gift as much as possible to their four children without making any taxable gifts or using any of their applicable credit amount. What is the total amount they can give each year?
• Irrevocable trust is out of the estate but still taxes its income to the grantor rather than at the 'compressed' rates of a complex trust is referred to as which of the following?
• What is decanting in the context of trusts, and what is its purpose?
• Who is a skip-generation beneficiary?
• What happens to irrevocable trust assets in terms of ownership and control?
• Direct payments of educational expenses for a skip person to an educational institution are categorized as which GST transfer?
• A Treasury bill is taxable by which entity?
• A pour over provision is typically included in which document?
• Which of the following is NOT an advantage of investing in equity REITs?
• In 2026, a grandmother makes the following payments for her granddaughter: $25,000 directly to a university for tuition; $5,000 for books and supplies; $10,000 directly to a hospital for medical treatment. How much of these payments qualifies as an unlimited exclusion payment (qualified transfer) for gift and GST tax purposes?
• A widower wants to gift as much as possible to his three children without making taxable gifts and without using any of his applicable credit. What is the total amount he can give in 2026?
• Which statement about constructive trusts as a remedy is accurate?
• Which statement correctly contrasts a trust with a will as vehicles for transferring property at death?
• Which asset cannot be used to fund a credit shelter trust?
• TRUE regarding the GSTT Exemption?
• Money market investments typically have what compared to bonds regarding price volatility?
• Which rating is the lowest that is still considered investment grade according to Standard & Poor's?