Exam 15: Duties of Fiduciaries: Financial Planners,trustees,and Executors

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A trustee, in the role of managing and a...

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A fiduciary relationship is a legal or e...

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A) Will never be considered a fiduciary
B) Always is considered a fiduciary during the course of providing professional services
C) Will likely be considered to be a fiduciary during the course of preparing monthly adjusting entries for small, unsophisticated business owners
D) Will likely be considered to be a fiduciary if the accountant provides financial planning services to clients and sells them sophisticated tax-sheltered insurance policies

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A) Subjects CPAs to fiduciary duties in their roles as auditors of publicly-traded companies
B) Subjects CPAs to fiduciary duties in their roles as executors of estates due to the extreme vulnerability of estate assets and the lack of checks and balances on CPAs' conduct
C) Subjects CPAs to fiduciary duties when their clients are financially unsophisticated or otherwise vulnerable
D) Did not affect CPAs' potential duties as fiduciaries

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A) $3 million to each of the four beneficiaries
B) $12 million to the grantor's husband
C) $12 million to the grandchildren, collectively
D) $6 million to the grantor's husband and $6 million to the grandchildren, collectively

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A) Is not independent to continue to audit Waltonvillemart, Inc. because of the material amounts involved
B) Is not independent to continue to audit Waltonvillemart, Inc. because of the appearance, if not actuality, of a dual-client conflict of interest
C) Definitely is independent to continue to audit Waltonvillemart, Inc. because there are no material threats to independence
D) Is independent to continue to audit Waltonvillemart, Inc., as long as the company and the CEO both waive their right to object to this trustee service

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A) The co-grantors of a trust, such as a married couple that establish a trust for their offspring
B) The income beneficiary and remainderman of a split-interest trust
C) The trustee and beneficiary of a spendthrift trust
D) An individual who is both the grantor and the beneficiary of a blind trust established for his benefit

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A) Is entitled to compensation both for serving as a trustee and for preparing the tax returns
B) Is entitled to compensation for serving as the trustee, but is not entitled to separate and independent compensation for preparing the tax returns
C) Is not entitled to compensation for serving as the trustee, but is entitled to compensation for preparing the tax returns because a trustee is not expected as part of her customary duties to have sufficient skill or training to prepare accurate tax returns
D) Is not entitled to compensation whatsoever, and is allowed to delegate the task of preparing tax returns to a competent, paid tax return preparer

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Yes, a spendthrift trust can also be a testamentary trust. To understand how this is possible, it's important to define both terms:1. Spendthrift Trust: A spendthrift trust is a type of trust that is designed to protect the beneficiary's interest from creditors and the beneficiary's own potentially imprudent spending. The trust includes a spendthrift provision that restricts the beneficiary's ability to voluntarily or involuntarily transfer his or her interest in the trust assets. This means that creditors generally cannot reach the funds in the trust until they are distributed to the beneficiary, and even then, there may be limitations. 2. Testamentary Trust: A testamentary trust is a trust that is created upon the death of an individual and is typically established through a provision in the deceased person's will. Unlike a living trust, which is established and becomes operational during the grantor's lifetime, a testamentary trust does not come into effect until after the grantor's death. Combining the two, a spendthrift testamentary trust is a trust that is created by a will upon the death of the testator (the person who made the will) and includes spendthrift provisions to protect the assets from the beneficiary's creditors and from the beneficiary's own spending habits. The testamentary trust will be administered by a trustee according to the terms laid out in the will, and the spendthrift provisions will apply to the assets held within the trust. In summary, a spendthrift trust can indeed be structured as a testamentary trust, providing post-mortem control and protection of assets for the benefit of the heirs in accordance with the wishes of the deceased.

A) An injured client is entitled to recover triple the amount of his provable damages
B) An injured client is entitled to recover his actual damages, plus interest, and attorney's fees
C) A client is entitled to recover the amount of the profits earned by the fiduciary as a result of its misconduct, even if the client did not suffer any actual damages
D) A client is presumed to be entitled to recover the amount of the profits earned by the fiduciary, unless the fiduciary can prove that the client suffered no actual harm

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A) A blind trust
B) A living trust
C) A split-interest trust
D) A spendthrift trust

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C

A) Only the duty of impartiality
B) Only the duty of care
C) Only the duty of loyalty
D) All of the above

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A person might want to create a living t...

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A) Yes, as long as Hartwog does not make investment decisions for the estate concerning Bantam Boxers
B) Yes, as long as Hartwog does not participate as the primary or concurring partner on the audit
C) Yes, as long as the will clearly identifies the parties who will receive Bantam Boxer stock as inheritances and Hartwog does not have the authority to alter this will provision
D) No

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A) While the grantor is no long living
B) Upon the death or disability of a grantor
C) By the creation of an irrevocable will document
D) To take effect while the grantor is still alive

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A) A duty to inform appropriate governmental authorities
B) A duty to return all fees received to date that were derived from the illegal proceeds of such sales
C) A duty to hold the illegal proceeds in trust for potential examination or appropriation by government investigators
D) Potentially committed a discreditable act that subjects the professional accountant to discipline under the IFAC Code of Conduct

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A) The identical fiduciary duties that apply to Meryl
B) Stricter fiduciary duties than apply to Meryl, if the trusts are inter vivos trusts
C) Stricter fiduciary duties than apply to Meryl, if the trusts are testamentary trusts and Tyus no longer is alive
D) Stricter fiduciary duties than apply to Meryl, regardless of the type of trust that was created, because of the AICPA's Statement on Conduct in Fiduciary Services

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An executor of an estate, also known as a personal representative, is responsible for managing the estate of a deceased person in accordance with the terms of the will and relevant laws. The duty of loyalty is a fundamental obligation that requires the executor to act in the best interests of the estate and its beneficiaries, avoiding conflicts of interest and self-dealing. In fulfilling this duty, executors may encounter various ethical dilemmas, including: 1. **Conflict of Interest**: An executor may have personal interests that conflict with the interests of the beneficiaries. For example, if the executor stands to benefit from selling an estate asset to themselves or their family at a price below market value, this would be a conflict of interest. 2. **Fair Distribution**: The executor must ensure that all beneficiaries are treated fairly and in accordance with the will. If the executor has a closer relationship with some beneficiaries than others, they may be tempted to favor those individuals, which would be unethical. 3. **Confidentiality**: Executors have access to sensitive information about the deceased person's assets, debts, and beneficiaries. They must maintain confidentiality and not disclose this information improperly. 4. **Managing Disputes**: Beneficiaries may have conflicting interests or interpretations of the will. The executor must navigate these disputes impartially and in a manner that upholds the intent of the will, which can be ethically challenging. 5. **Investment Decisions**: Executors are often responsible for managing the estate's assets until they are distributed. They must make investment decisions that are prudent and in the best interest of the beneficiaries, which can be difficult if the executor lacks financial expertise. 6. **Handling Debts and Taxes**: Executors must ensure that all debts and taxes are paid before distributing assets. If the estate has insufficient funds to cover these obligations, the executor must decide how to equitably reduce inheritances, which can lead to ethical dilemmas. 7. **Beneficiary Requests**: Beneficiaries may pressure the executor to make distributions or take actions that are not in line with the will or the law. The executor must resist such pressures and adhere to their fiduciary duties. 8. **Personal Grief**: Executors are often close to the deceased and may be grieving. Their personal emotions could cloud their judgment and lead to decisions that are not in the best interest of the estate or its beneficiaries. 9. **Compensation**: Executors are typically entitled to reasonable compensation for their services. Determining what is reasonable can be an ethical dilemma, especially if beneficiaries believe the compensation is excessive. 10. **Transparency**: Executors must keep beneficiaries informed about the administration of the estate. Balancing the need for transparency with the need to make efficient decisions can sometimes create ethical challenges. In all these situations, the executor must navigate the ethical dilemmas with a focus on upholding their duty of loyalty, acting with integrity, and ensuring that their actions are in line with the will of the deceased and the best interests of the estate and its beneficiaries. If an executor is unsure about the ethical implications of a decision, they may seek guidance from a legal professional or a court to ensure they are fulfilling their duties appropriately.