CTFA Trust and Financial Advisor Certification 4

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

Employee Retirement Income Security Act (ERISA)

Answer

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

Question 3

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:

Accepted Answer

A self-dealing transaction that violates the duty of loyalty

Answer

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.

Question 4

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

Accepted Answer

Included in the gross estate because the decedent retained control

Answer

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.

Question 5

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?

Accepted Answer

Merger doctrine, unless there are other beneficiaries or remainder interests

Answer

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.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA Trust and Financial Advisor Certification 4