Cannon Trust School Level II Practice Exam

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• What is a charitable lead trust (CLT) and how does it operate?
• ETFs differ from open-ended mutual funds on all of the following EXCEPT:
• Which statement about the application of the annual gift tax exclusion is correct?
• Which of the following is NOT a requirement of a QTIP trust?
• Which asset cannot be used to fund a credit shelter trust?
• GST tax applicability is conditioned on the middle generation not being taxed by gift or estate taxes in that generation.
• What is the prohibition on self-dealing and how does it protect beneficiaries?
• Which of the following statements correctly states the generation-skipping tax exemption for 2026?
• Which statement best describes how fiduciary duties interact with the trust instrument in handling distributions?
• What does QTIP stand for in trust terminology?
• 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?
• What happens to irrevocable trust assets in terms of ownership and control?
• 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?
• 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:
• Describe termination by merger of legal and equitable title in a trust.
• 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?
• 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?
• Which remedy might a court order to ensure proper accounting and record-keeping by a trustee when mismanagement is suspected?
• Which statement about residuary gifts is accurate?
• Which element ensures there is enforceability by identifying beneficiaries or a charitable purpose?
• Which statement best describes a charitable lead trust (CLT) timing?
• What is a defining characteristic of joint tenancy with right of survivorship?
• Using the same asset set, what is the value of his gross estate for estate tax purposes?
• 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?
• In 2026, what is the annual gift tax exclusion per donee for gifts of present interest?
• Which is the best definition of the 'applicable rate' for GSTT?
• Explain the role of tracing in remedies for misappropriated trust assets.
• GST rules apply to property passing two or more generations below the grantor.
• Which statement properly describes how a QTIP election affects inclusion in the gross estate?
• Qualified terminable interest property does not qualify for the marital deduction unless the executor does which of the following?
• The market price of shares of a closed-end investment company is:
• Which of the following best defines a Silent Trust?
• Which of the following is NOT an advantage of investing in equity REITs?
• Gifts to which of the following trusts will NOT qualify as a gift of present interest for the annual exclusion?
• 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?
• Which statement best describes the fiduciary duty of loyalty in a trust?
• What is a pour-over trust and when is it used?
• Under the Generation-Skipping Transfer (GST) tax rules, who is responsible for filing the GST tax return on a taxable termination?
• Which of the following best defines a Blind Trust?
• In 2026, who is responsible for filing the GST tax return and paying the GST tax on a taxable termination?
• Which actions constitute breach of fiduciary duty by a trustee, and what remedies may follow?
• Which statement about constructive trusts as a remedy is accurate?
• 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?
• Which of the following is NOT a form of real estate investment?
• 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 of the following is a required characteristic of a Qualified Domestic Trust (QDOT) for estate tax purposes?
• 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?
• Which beneficiary qualifies for the generation-skipping tax predeceased ancestor exception?
• 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:
• The duration of a life estate is BEST described as which of the following?
• If investors expect interest rates to increase, they will:
• 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?
• What is fiduciary accounting and its purpose in trust administration?
• What is decanting and how can it affect beneficiaries’ rights?
• In a trust, which distribution approach characterizes the trustee's freedom to decide whether to make distributions?
• What type of funding formula is described by the language 'The numerator of the fraction shall be ... The denominator of the fraction shall be'?
• Which acronym stands for Domestic Irrevocable Non-Grantor trust?
• Bonds that can be traded in for stock are known as:
• Which of the following is a mandatory characteristic of a QDOT?
• True or false: Zero-coupon bonds accrue taxable income each year even though no cash is received until maturity.
• 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?
• 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 the term for the language that directs that the residuary estate be added to a trust under a trust agreement?
• Open-end and closed-end investment companies differ in their:
• A company will redeem (call) its bonds if interest rates do what?
• Compare a private foundation with a charitable remainder trust and explain their tax implications.
• Which of the following is true about a QTIP Trust?
• Who is responsible for paying the GST tax on a taxable distribution under GST rules?
• What defines ascertainable beneficiaries and why are they important in a trust?
• Under the prudent investor rule, which practice is least appropriate?
• Which term describes a share of an estate allocated before the residuary distribution?
• Which of the following is NOT a requirement of a Pet Trust under the Uniform Trust Code?
• What is the difference between a resulting trust and a constructive trust?
• Which of the following gifts is not subject to gift tax in 2026?
• Which of the following statements is TRUE about transfer taxes in 2026?
• The Spousal Lifetime Access Trust is abbreviated as which acronym?
• Money market investments typically have what compared to bonds regarding price volatility?
• Which rule prohibits a trustee from using trust assets for personal gain or conflicts of interest?
• Which statement is true about ETFs relative to traditional open-end funds?
• To qualify a QTIP property for the marital deduction, the executor must do which of the following?
• Which of the following can NOT be disposed of through a provision in a decedent's will?
• Which of the following is typical of a marital deduction trust?
• A transferor funds a trust for the benefit of her grandchildren. This is an example of which type of transfer under GST rules?
• Explain accumulation vs distribution of income in a trust and its tax implications.
• The price an investor will pay today when purchasing an open-end investment company is determined from:
• What does the prudent investor rule require trustees to do?
• Which municipal bond type is secured by the issuer's general taxing power?
• Which statement best defines an express trust?
• Under the 'conduit' theory, taxes payable on dividends and interest distributed by a regulated investment company are paid:
• Which statement best describes the rate at which the GST tax is applied?
• Allocation of GST exemption for an irrevocable trust subject to a taxable termination is made by which of the following?
• What is the purpose of laddering bond maturities when interest rates are expected to rise?
• For zero-coupon bonds, the tax liability is determined by which of the following?
• 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:
• In a taxable termination scenario, when is the GST exemption allocated?
• How can bankruptcy affect trust assets, particularly those with spendthrift protections?
• 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?
• Which statement about investing in precious metals is not true?
• Which feature of investing in precious metals is a characteristic?
• Which of the following is NOT one of the four essential elements required to create an express trust?
• What is the duty of impartiality in trusts with multiple beneficiaries and uneven interests?
• Which statement best differentiates residuary gifts from specific gifts?
• RLT is the abbreviation for which type of trust?
• In GST tax terms, the inclusion ratio represents which of the following?
• Describe the difference between discretionary and non-discretionary distributions.
• If a grandparent's trust pays $50,000 directly to a grandchild's university for tuition, this payment is best categorized as which?
• The intention in creating a silent trust is generally to do any of the following EXCEPT:
• To qualify for the annual gift tax exclusion, the gift can NOT be made in which of the following forms?
• The maximum amount that an individual can shelter from federal estate tax (other than the marital or charitable deductions) is which of the following?
• Dividend distributions from mutual funds are:
• Which statement about investing in precious metals is not true?
• What evidentiary requirements typically apply to a land trust?
• What is decanting in the context of trusts, and what is its purpose?
• 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?
• GST transfer scope: It applies to property passing two or more generations below the grantor.
• Who is a skip-generation beneficiary?
• Which statement best describes prudent diversification in trustee investment management?
• A trust created in another state to save state income taxes on undistributed earnings is best known as which of the following?
• Which rating is the lowest that is still considered investment grade according to Standard & Poor's?
• What is the trustee's approach to investment risk under the prudent investor rule?
• Under spendthrift provisions, which types of claims are sometimes allowed to reach the beneficiary despite the provision?
• 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?
• Cy pres concept: when is it used in charitable trusts?
• With a '5 by 5' withdrawal power and a trust corpus of $100,000, what is the maximum annual withdrawal?
• Under the Cy Pres doctrine, if a charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful, what may the court do?
• Name the primary duties a trustee owes to protect and preserve trust principal.
• How do charitable lead trusts differ from charitable remainder trusts in terms of income distribution?
• 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?
• Which of the following statements about a general power of appointment is true?
• Which of the following transfers qualifies for the unlimited gift tax exclusion when paid directly to an institution?
• Which statement correctly contrasts a trust with a will as vehicles for transferring property at death?
• 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?
• What is the purpose of a credit shelter trust in estate planning?
• 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?
• Which statement best describes joint tenancy with rights of survivorship?
• 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 of the following would not qualify for the federal estate tax marital deduction?
• A Treasury bill is taxable by which entity?
• What remedies exist when a trustee commingles assets or fails to maintain proper records?
• Since the Gift and Estate Tax rates are unified which statement best describes the relative advantages of gift versus estate taxes?
• What is a trust instrument and what essential provisions does it typically include?
• In estate planning, the residuary estate refers to which portion?
• 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?
• Remedies for breach by a trustee (self-dealing, etc.)?
• The annual gift tax exclusion applies per donee, not per donor.
• Which of the following is characteristic of a gift under the uniform gifts to minors act?
• How does a testamentary trust differ from an inter vivos trust in funding and creation?
• 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?
• Open-end and closed-end investment companies primarily differ in which aspect?
• A power that allows appointment to the holder or the holder's estate is an example of which power type?
• Mary and Bill own a house as joint tenants with rights of survivorship. When Mary dies, which of the following best describes the result?
• IDGT stands for which type of trust?
• What is the function of a spendthrift provision?
• 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 best describes the purpose of a QTIP trust in estate planning?
• Holding a general lifetime power of appointment over trust property has what income tax consequence?
• In a pro rata fractional formula, which trust is frozen during administration prior to funding?
• What is the purpose of allocating GST exemptions in trust planning?
• In 2026, the annual gift tax exclusion is:
• Which statement best defines an Incentive Trust?
• Compared to bonds, money market investments typically possess which characteristics?
• GSTT transfers occur under which circumstance?
• Which statement describes an irrevocable life insurance trust (ILIT) regarding ownership of life insurance?
• Natural resource equity prices have historically been sensitive to all of the following EXCEPT:
• Describe the trustee’s duties when managing a trust with minor beneficiaries?
• Describe typical criteria used to determine reasonable trustee compensation.
• A pour over provision is typically included in which document?
• Direct payments of educational expenses for a skip person to an educational institution are categorized as which GST transfer?
• Which statement about the reverse QTIP election under IRC§2652(a)(3) is TRUE?
• Which bond issue is secured by the income from a bridge or toll road?
• Explain the use of ascertainable standards for beneficiary distributions and limitations in special-needs planning.
• Which of the following is NOT an advantage of investing in precious metals?
• CLT is the abbreviation for which type of trust?
• What is a power of appointment in a trust, and what classifications are common?
• TRUE regarding the GSTT Exemption?
• What is the primary effect of a no-contest clause in a will or trust?
• Which bond type is typically exempt from federal income tax?
• Which statement about lifetime taxable gifts is TRUE?
• 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?
• 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?
• Which item is NOT typically included in a standard trust instrument?
• Which statement best describes the GST tax in the context of trusts and skip-generation transfers?
• Which records should a trustee maintain for accountability purposes?
• What is an irrevocable life insurance trust (ILIT) and its typical purpose?
• Identify key features and tax treatment of charitable trusts compared to private trusts.
• 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?
• Which statement best differentiates revocable trusts from irrevocable trusts in terms of control and tax treatment?
• Which of the following is MANDATORY to qualify the general power of appointment (GPA) marital deduction trust?
• 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?
• Define a QTIP trust and its typical use in estate planning?
• How does DNI influence tax treatment when distributions are made from a trust?
• In GST terms, a skip person is at least how many generations younger than the grantor?
• In a scenario with a 28% federal bracket and 6% state bracket, which investment would yield the highest after-tax income?
• In 2026, the GST exemption amount is?
• To maximize both spouses use of the generation skipping exemption in an optimal marital deduction plan, what type of marital bequest must be used?