CES Ethical Standards & Professional Conduct 2 — Questions and Answers
Question 1: A CES professional discovers that a co-trustee is charging personal expenses to the trust account. What is the MOST appropriate immediate action?
- Ignore it if the amounts are small
- Document the misconduct and report it to the appropriate supervisory authority (Correct answer)
- Confront the co-trustee privately and drop the matter if they agree to stop
- Resign from the engagement without further action
Correct answer: Document the misconduct and report it to the appropriate supervisory authority
A CES professional must document and report suspected fiduciary misconduct to the appropriate supervisory or regulatory authority to protect beneficiaries.
Question 2: Which ethical principle requires a CES professional to place the interests of trust beneficiaries above their own financial gain?
- Confidentiality
- Competence
- Loyalty (Correct answer)
- Transparency
Correct answer: Loyalty
The duty of loyalty requires fiduciaries to act solely in the best interests of beneficiaries, never for personal gain.
Question 3: A trust client asks a CES professional to recommend their brother-in-law's investment firm. Accepting this referral arrangement without disclosure would violate which standard?
- Duty of prudence
- Duty to disclose conflicts of interest (Correct answer)
- Duty of impartiality
- Duty of record-keeping
Correct answer: Duty to disclose conflicts of interest
Accepting referral compensation from a related party without disclosure creates an undisclosed conflict of interest, violating professional ethical standards.
Question 4: Under the Uniform Trust Code, what does the duty of impartiality require of a trustee managing a trust with both income and remainder beneficiaries?
- Maximize income distributions regardless of principal
- Favor the remainder beneficiaries since they hold the larger interest
- Balance the competing interests of current income and remainder beneficiaries fairly (Correct answer)
- Follow only the instructions of the settlor regardless of beneficiary needs
Correct answer: Balance the competing interests of current income and remainder beneficiaries fairly
The duty of impartiality requires trustees to administer the trust equitably, balancing the interests of both current income and remainder beneficiaries.
Question 5: A CES professional who realizes they lack expertise in a complex area of international estate law should FIRST:
- Proceed and learn on the job to avoid losing the client
- Decline all estate work going forward
- Consult or refer to a qualified specialist while remaining transparent with the client (Correct answer)
- Charge a lower fee and attempt the work anyway
Correct answer: Consult or refer to a qualified specialist while remaining transparent with the client
Competence standards require practitioners to recognize the limits of their expertise and refer or consult specialists rather than proceed inadequately.
Question 6: Which of the following BEST describes 'self-dealing' in a trust context?
- A trustee investing trust assets in publicly traded securities
- A trustee purchasing trust property for their own account at fair market value without court or beneficiary approval (Correct answer)
- A trustee hiring professional advisors to assist with trust administration
- A trustee distributing income according to the trust instrument
Correct answer: A trustee purchasing trust property for their own account at fair market value without court or beneficiary approval
Self-dealing occurs when a trustee uses their position to benefit personally from trust assets, such as purchasing trust property, even at fair market value, without proper authorization.
Question 7: A CES specialist receives confidential estate planning information from a client. Under what circumstance may this information ethically be disclosed to a third party?
- When a colleague asks out of professional curiosity
- When required by law, court order, or with the client's informed consent (Correct answer)
- When the information could benefit another client
- When the professional relationship has ended
Correct answer: When required by law, court order, or with the client's informed consent
Confidential client information may only be disclosed when legally compelled, ordered by a court, or when the client provides informed consent to the disclosure.
CES Ethical Standards & Professional Conduct 2
A CES professional discovers that a co-trustee is charging personal expenses to the trust account.
What is the MOST appropriate immediate action?