CTFA Fiduciary Duties and Legal Compliance 3

Question 1

When a trustee fails to diversify trust investments and the trust suffers a resulting loss, the trustee may be liable for which remedy?

Accepted Answer

Surcharge equal to the loss caused by the failure to diversify

Answer

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.

Question 2

Under ERISA, what is the 'exclusive benefit rule' for qualified retirement plan trustees?

Accepted Answer

Plan assets must be managed solely for the benefit of plan participants and beneficiaries

Answer

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.

Question 3

What is the significance of the 'no further inquiry' rule in trust law?

Accepted Answer

Courts will void self-dealing transactions without requiring proof of actual harm

Answer

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.

Question 4

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?

Accepted Answer

The trustee's discretion guided by the trust's ascertainable standard (health, education, maintenance, support)

Answer

Ascertainable standards such as health, education, maintenance, and support guide discretionary principal distributions and limit the trustee's discretion to objective criteria.

Question 5

Which of the following is a trustee's duty when a conflict arises between co-trustees about an investment decision?

Accepted Answer

Follow the majority decision of co-trustees unless the decision is a clear breach of duty

Answer

When co-trustees disagree, the majority typically governs, but a dissenting trustee may be protected from liability if the dissent is properly documented.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Fiduciary Duties and Legal Compliance 3