Trust and Financial Advisor Certification Flashcards

A trustee of a revocable trust receives notice that the grantor has become incapacitated. What typically happens to the trust's revocability?

Answer: The trust continues in force; the successor trustee manages it but revocability is suspended during incapacity

During the grantor's incapacity, a revocable trust typically continues under successor trustee management, but the power to revoke is suspended since it is personal to a competent grantor.

Which federal law governs the fiduciary standards applicable to employee benefit plan trustees under qualified retirement plans?

Answer: Employee Retirement Income Security Act (ERISA)

ERISA sets the exclusive fiduciary standards—including prudence, loyalty, diversification, and plan document adherence—for trustees and fiduciaries of qualified employee benefit plans.

A trustee wants to invest trust assets in a limited partnership in which the trustee's sibling is a general partner. This situation is best described as:

Answer: A self-dealing transaction that violates the duty of loyalty

Investing in a venture where the trustee's close family member is the general partner creates a conflict of interest constituting self-dealing, which violates the fiduciary duty of loyalty regardless of the investment's merits.

For federal estate tax purposes, assets held in a decedent's revocable living trust at death are:

Answer: Included in the gross estate because the decedent retained control

Assets in a revocable trust are fully includable in the grantor's gross estate under IRC §2038 because the grantor retained the power to revoke, amend, or control distributions.

A CTFA is reviewing a trust that names an individual as both trustee and sole beneficiary. Which legal doctrine most commonly prevents this arrangement from collapsing the trust?

Answer: Merger doctrine, unless there are other beneficiaries or remainder interests

The merger doctrine holds that when the same person holds all beneficial and legal interests, the trust collapses—unless remainder beneficiaries or other interests keep the legal and equitable title separate.

A client age 72 has a traditional IRA and asks about required minimum distributions (RMDs). Under the SECURE 2.0 Act, what is the applicable beginning date for RMDs?

Answer: April 1 of the year following the year the account owner turns 73

SECURE 2.0 raised the RMD starting age to 73 (for those born 1951–1959), with distributions required by April 1 of the year after the owner reaches that age.

A trust contains a spendthrift clause. Which of the following creditors can typically still reach the beneficiary's trust interest despite this clause?

Answer: Child support and alimony claimants under most state laws

Most states create exceptions to spendthrift protection for claims related to child support and alimony, recognizing that public policy favors enforcement of family support obligations.