CTFA Fiduciary Duties and Legal Compliance 2 — Questions and Answers
Question 1: Under the Uniform Trust Code (UTC), what information must a trustee provide to qualified beneficiaries at least annually?
- A report of trust property, liabilities, receipts, and disbursements (Correct answer)
- A copy of the complete trust instrument
- A certified appraisal of all trust assets
- The trustee's compensation schedule for the year
Correct answer: A report of trust property, liabilities, receipts, and disbursements
The UTC requires trustees to provide qualified beneficiaries with an annual report of trust assets, liabilities, income, and expenses so they can monitor trust administration.
Question 2: What is the legal consequence of commingling trust assets with a trustee's personal funds?
- It constitutes a breach of fiduciary duty and may result in trustee removal and surcharge (Correct answer)
- It is permissible if the trustee maintains accurate accounting records
- It is allowed only if all current beneficiaries provide written consent
- It reduces the trustee's liability for investment losses in the trust
Correct answer: It constitutes a breach of fiduciary duty and may result in trustee removal and surcharge
Commingling is a serious breach of fiduciary duty that can expose the trustee to personal liability for losses and may result in court-ordered removal.
Question 3: Which doctrine allows a court to reform a trust document to conform to the grantor's original intent when a drafting error occurred?
- Equitable reformation (Correct answer)
- Cy-près doctrine
- Merger doctrine
- Resulting trust doctrine
Correct answer: Equitable reformation
Equitable reformation allows courts to correct drafting mistakes in trust documents to reflect the grantor's true intent at the time of execution.
Question 4: What is the cy-près doctrine in trust law?
- A court's power to modify a charitable trust's purpose when the original purpose becomes impractical or impossible (Correct answer)
- A rule requiring trust assets to be distributed within a generation of the grantor's death
- A doctrine that merges a trustee's legal title with a beneficiary's equitable title
- A rule invalidating trusts that violate public policy
Correct answer: A court's power to modify a charitable trust's purpose when the original purpose becomes impractical or impossible
The cy-près doctrine allows courts to redirect a charitable trust's purpose to one as close as possible to the original when the stated purpose fails.
Question 5: A directed trust structure differs from a traditional trust in which key way?
- Investment and distribution decisions are separated from administrative duties (Correct answer)
- The trust is governed by multiple jurisdictions simultaneously
- The trustee has no accountability for any trust decisions
- Beneficiaries serve as co-trustees with full investment authority
Correct answer: Investment and distribution decisions are separated from administrative duties
In a directed trust, an investment advisor or distribution committee holds decision-making authority while the administrative trustee carries out instructions, limiting its liability.
Question 6: Which statute governs the delegation of trustee investment functions to agents such as investment advisors?
- Uniform Prudent Investor Act (UPIA) (Correct answer)
- Uniform Trust Code (UTC)
- Employee Retirement Income Security Act (ERISA)
- Uniform Principal and Income Act (UPIA)
Correct answer: Uniform Prudent Investor Act (UPIA)
The UPIA expressly permits trustees to delegate investment functions to qualified agents and defines the standard of care trustees must apply when selecting, monitoring, and instructing agents.
CTFA Fiduciary Duties and Legal Compliance 2
Under the Uniform Trust Code (UTC), what information must a trustee provide to qualified beneficiaries at least annually?