Fiduciary Duties and Legal Compliance Flashcards
6 cards from real CTFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Fiduciary Duties and Legal Compliance flashcards as text
When a trustee fails to diversify trust investments and the trust suffers a resulting loss, the trustee may be liable for which remedy?
Answer: Surcharge equal to the loss caused by the failure to diversify
A trustee who breaches the duty to diversify may be surcharged—ordered to personally compensate the trust for losses attributable to the lack of diversification.
Under ERISA, what is the 'exclusive benefit rule' for qualified retirement plan trustees?
Answer: Plan assets must be managed solely for the benefit of plan participants and beneficiaries
ERISA's exclusive benefit rule requires plan fiduciaries to manage plan assets solely in the interest of participants and beneficiaries, not for any other purpose.
What is the significance of the 'no further inquiry' rule in trust law?
Answer: Courts will void self-dealing transactions without requiring proof of actual harm
Under the no further inquiry rule, self-dealing transactions are voidable at the beneficiary's election regardless of whether actual harm occurred or intent was improper.
A trustee receives a request from a current income beneficiary to invade principal for an elective expense. Under the UTC, which standard typically governs discretionary principal distributions?
Answer: The trustee's discretion guided by the trust's ascertainable standard (health, education, maintenance, support)
Ascertainable standards such as health, education, maintenance, and support guide discretionary principal distributions and limit the trustee's discretion to objective criteria.
Which of the following is a trustee's duty when a conflict arises between co-trustees about an investment decision?
Answer: Follow the majority decision of co-trustees unless the decision is a clear breach of duty
When co-trustees disagree, the majority typically governs, but a dissenting trustee may be protected from liability if the dissent is properly documented.
What is the primary purpose of a trust's investment policy statement (IPS)?
Answer: To document the investment objectives, risk tolerance, and guidelines for managing trust assets
An IPS provides written guidance on return objectives, risk tolerance, asset allocation, and investment constraints, helping trustees meet their fiduciary obligations.