CTFA Sample Exam Questions

The following questions are representative of the types of questions you will find on the examination.

1. A trust you administer, in a jurisdiction that has adopted Directed Trust statutes, contains language in the trust document appointing a fiduciary for investment purposes.  Your institution is a directed trustee responsible as a fiduciary for administration only.  You believe that the investment fiduciary is abusing this power and is directing you to make an imprudent investment. You should:

a. Tell the advisor he must first obtain the consents of the current beneficiary and presumptive remaindermen.
b. Confront the advisor and, if the situation cannot be remedied, seek court guidance.
c. Follow the advisor's directions nonetheless.
d. Obtain the written consent of all fiduciaries. 

2. Your client is married and has a net worth of $12 million, which includes a jointly owned house worth $2.5 million. His wife has assets of $1 million. They have simple wills leaving everything to each other and then to their two children in equal shares. The BEST advice to reduce federal estate taxes is that he:

a. Leave everything to his wife in his will.
b. Give $14,000 per year to each of his two children.
c. Incorporate a credit shelter trust provision in his will.
d. Transfer the house ownership completely to his wife.

3. Distributions from which of the following CANNOT be rolled over into an IRA?

a. 401(k)
b. Money Purchase Pension Plan
c. Profit Sharing Plan
d. Rabbi Trust

4. John creates a trust with income during life to Sam, the remainder to Sue. John retains the right to amend or revoke the agreement. Sue will have to disclaim her interest in the trust within 9 months of:

a. John's death
b. Sam's death
c. The creation of the trust
d. The appointment of the executor or administrator of Sam's estate

5. A client faces a 30% federal income tax rate and a 5% state tax rate. Municipal bonds issued in the client’s state of residence are exempt from state taxes. Considering current income only, and not adjusting for the federal deductibility of state taxes, which of the following repre­sents a proper comparison of bond attractiveness?

a. A 10% Treasury bond is more attractive than a 7.2% municipal bond issued by a state of which the client is not a resident.
b. A 6.0% bond issued by the client's state of residence is more attractive than a 7.2% municipal bond issued by another state.
c. An 18% corporate bond is more attractive than a 12% municipal bond issued by the client's state of residence.
d. A 6.75% municipal bond issued by the client's state of residence is more attractive than a 7% municipal bond issued by a U.S. territory.

Answer Key:

1. b
2. c
3. d
4. a
5. a​