Financial Advisor Certified Trust and Financial Advisor 2 — Questions and Answers
Question 1: A trustee is considering investing trust assets in a single stock that represents 40% of the portfolio. Which fiduciary duty is most at risk?
- Duty of loyalty
- Duty of prudence and diversification (Correct answer)
- Duty to inform beneficiaries
- Duty to collect trust assets
Correct answer: Duty of prudence and diversification
The Uniform Prudent Investor Act requires trustees to diversify trust investments unless special circumstances justify concentration.
Question 2: Under the Uniform Trust Code, which type of trust can be revoked or amended by the settlor at any time?
- Testamentary trust
- Irrevocable living trust
- Revocable living trust (Correct answer)
- Charitable remainder trust
Correct answer: Revocable living trust
A revocable living trust allows the settlor to modify, amend, or revoke the trust during their lifetime.
Question 3: A CTFA candidate must understand that a 'spendthrift clause' in a trust primarily protects:
- The trustee from liability
- Beneficiaries from their own creditors (Correct answer)
- The trust corpus from estate taxes
- The settlor's right to revoke
Correct answer: Beneficiaries from their own creditors
A spendthrift clause restricts a beneficiary's ability to transfer their interest and prevents creditors from reaching trust assets before distribution.
Question 4: Which generation-skipping transfer (GST) tax exemption amount applies per taxpayer in 2024?
- $5.49 million
- $12.92 million
- $13.61 million (Correct answer)
- $10.00 million
Correct answer: $13.61 million
The GST tax exemption for 2024 is $13.61 million per taxpayer, indexed annually for inflation.
Question 5: When a trustee has a conflict of interest regarding a trust transaction, the most appropriate action is to:
- Proceed if the transaction benefits the trust financially
- Obtain consent from all beneficiaries after full disclosure (Correct answer)
- Seek guidance from the trust's attorney only
- Delay the transaction until the conflict resolves itself
Correct answer: Obtain consent from all beneficiaries after full disclosure
Full disclosure followed by informed consent from all beneficiaries is the proper way to handle a trustee conflict of interest.
Question 6: A Charitable Lead Annuity Trust (CLAT) provides income to:
- The grantor for life, then the remainder to charity
- A charity for a fixed term, then the remainder to non-charitable beneficiaries (Correct answer)
- Beneficiaries for life, then the remainder to charity
- The IRS as a tax payment mechanism
Correct answer: A charity for a fixed term, then the remainder to non-charitable beneficiaries
In a CLAT, a fixed annuity is paid to a charitable organization for a specified term, after which remaining assets pass to non-charitable beneficiaries.
Question 7: Under the principal and income rules, which of the following is typically classified as trust principal rather than income?
- Dividend distributions from stock
- Rental income from trust property
- Proceeds from the sale of trust real estate (Correct answer)
- Interest from trust bonds
Correct answer: Proceeds from the sale of trust real estate
Proceeds from selling trust assets are classified as principal, while recurring payments like dividends, rent, and interest are income.
Financial Advisor Certified Trust and Financial Advisor 2
A trustee is considering investing trust assets in a single stock that represents 40% of the portfolio.
Which fiduciary duty is most at risk?