CES Regulatory Framework & Compliance 2 — Questions and Answers
Question 1: Under the Uniform Trust Code (UTC), which party has the authority to waive the trustee's duty to inform and report to beneficiaries?
- The probate court
- The settlor in the trust instrument (Correct answer)
- The state attorney general
- The IRS
Correct answer: The settlor in the trust instrument
The UTC permits the settlor to waive or modify the trustee's default duty to keep beneficiaries informed, subject to certain protections.
Question 2: Which federal law primarily governs the regulation of investment advisers who manage trust assets and have assets under management of $100 million or more?
- Investment Company Act of 1940
- Investment Advisers Act of 1940 (Correct answer)
- Securities Exchange Act of 1934
- Employee Retirement Income Security Act
Correct answer: Investment Advisers Act of 1940
The Investment Advisers Act of 1940 requires advisers with $100 million or more AUM to register with the SEC and comply with its fiduciary standards.
Question 3: A trustee fails to file a required Form 1041 for a trust. Which agency has primary enforcement authority over this non-filing?
- SEC
- FINRA
- IRS (Correct answer)
- OCC
Correct answer: IRS
The IRS has jurisdiction over trust income tax returns, including Form 1041, and can impose penalties for failure to file.
Question 4: Under ERISA, what is the maximum period after which a fiduciary breach claim can be brought if the claimant had actual knowledge of the breach?
- 1 year
- 2 years
- 3 years (Correct answer)
- 6 years
Correct answer: 3 years
ERISA §413 provides a 3-year statute of limitations for fiduciary breach claims when the plaintiff had actual knowledge of the breach.
Question 5: Which regulatory body oversees national bank trust departments that provide fiduciary services?
- FDIC
- CFPB
- OCC (Correct answer)
- FTC
Correct answer: OCC
The Office of the Comptroller of the Currency (OCC) supervises national banks, including their trust and fiduciary activities under 12 CFR Part 9.
Question 6: A corporate trustee suspects a trust account is being used for money laundering. Under the Bank Secrecy Act, what is the required action?
- Notify the beneficiary immediately
- File a Suspicious Activity Report (SAR) with FinCEN (Correct answer)
- Freeze the account and alert the FBI
- Consult the probate court for guidance
Correct answer: File a Suspicious Activity Report (SAR) with FinCEN
The Bank Secrecy Act requires financial institutions, including trust companies, to file a SAR with FinCEN when they suspect money laundering or other financial crimes.
Question 7: Under the Uniform Prudent Investor Act, a trustee's investment decisions are evaluated based on:
- Each investment in isolation against market benchmarks
- The entire portfolio in context of the overall investment strategy (Correct answer)
- The trust's historical average annual return
- Comparison to similarly-sized trust portfolios
Correct answer: The entire portfolio in context of the overall investment strategy
The UPIA adopts modern portfolio theory, evaluating investment performance based on the overall portfolio rather than individual investment decisions in isolation.
CES Regulatory Framework & Compliance 2
Under the Uniform Trust Code (UTC), which party has the authority to waive the trustee's duty to inform and report to beneficiaries?