AEP AEP Trust Administration & Management 1 — Questions and Answers
Question 1: A trustee who commingles trust assets with personal assets has breached which core fiduciary duty?
- Duty of loyalty
- Duty of prudent investment
- Duty to segregate assets (Correct answer)
- Duty to account
Correct answer: Duty to segregate assets
The duty to segregate assets requires trustees to keep trust property separate from their personal assets to avoid confusion and protect beneficiaries.
Question 2: Under the Uniform Trust Code, what is the minimum frequency at which trustees must provide accountings to qualified beneficiaries unless the trust provides otherwise?
- Monthly
- Quarterly
- Annually (Correct answer)
- Every 5 years
Correct answer: Annually
The UTC requires trustees to provide annual accountings to qualified beneficiaries, though the trust document can modify this requirement.
Question 3: Which type of trust allows the grantor to retain the right to receive a fixed annuity payment for a specified term, with the remainder passing to heirs?
- Charitable Remainder Trust
- Grantor Retained Annuity Trust (GRAT) (Correct answer)
- Qualified Personal Residence Trust (QPRT)
- Intentionally Defective Grantor Trust (IDGT)
Correct answer: Grantor Retained Annuity Trust (GRAT)
A GRAT allows the grantor to receive fixed annuity payments for a set term, and any remaining assets pass to heirs with reduced gift tax exposure.
Question 4: A corporate trustee's fee is typically calculated as a percentage of which value?
- Annual income distributed
- Trust corpus (principal) under management (Correct answer)
- Beneficiary's net worth
- Grantor's estate value at death
Correct answer: Trust corpus (principal) under management
Corporate trustee fees are generally based on the trust's principal under management, often expressed as a basis-point annual charge.
Question 5: Which standard governs how a trustee must invest trust assets under the Uniform Prudent Investor Act?
- Legal list standard
- Prudent man rule
- Total return/portfolio approach (Correct answer)
- Speculation is permitted if disclosed
Correct answer: Total return/portfolio approach
The Uniform Prudent Investor Act replaced the older prudent man rule with a modern portfolio theory approach focusing on total return and risk-adjusted performance.
Question 6: When a trust has both income and remainder beneficiaries, a trustee's primary challenge in investment is to balance which competing interests?
- Short-term gains vs. long-term losses
- Current income distributions vs. preservation of principal for remaindermen (Correct answer)
- Federal vs. state tax obligations
- Liquidity needs vs. tax efficiency
Correct answer: Current income distributions vs. preservation of principal for remaindermen
The trustee must balance providing current income to income beneficiaries while preserving or growing the principal for eventual distribution to remainder beneficiaries.
AEP AEP Trust Administration & Management 1
A trustee who commingles trust assets with personal assets has breached which core fiduciary duty?