Foundations of Trusts

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Awareness

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define a trust. 
  • Define parties to a trust.
    • Settlor
    • Trustee
    • Beneficiary
  • Identify how a trust is viewed in relation to the parties of the trust for legal purposes.
  • Identify purposes for which a trust may be used, such as:
    • Establish conditions for inheritance or access to testator’s assets
    • Alternative to a will for estate planning purposes
    • Management of property in the event of incapacity
    • Protection of property from the creditors of the settlor
    • Protection of property from the creditors of beneficiaries of the trust
    • Protection of property against claims by disappointed heirs
    • Protection of the beneficiary from themselves (spendthrifts)
    • Potential deferral of tax on disposition of property
    • Providing for subsequent generations
    • Privacy/confidentiality 
  •  Identify risks in establishing a trust, such as:
    • Potential loss of control of property
    • Cost
    • Complexity
    • Potential tax on deemed dispositions of assets
    • Potential for higher taxes
    • Difficulties in amending a trust, compared to a will
  • Define the status of a trust.
    • Revocable
    • Irrevocable
  • Identify who may be a trustee.

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Understanding

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Define a trust. 
  • Define parties to a trust.
    • Settlor
    • Trustee
    • Beneficiary
  • Identify how a trust is viewed in relation to the parties of the trust for legal purposes.
  • Identify purposes for which a trust may be used, such as:
    • Establish conditions for inheritance or access to testator’s assets
    • Alternative to a will for estate planning purposes
    • Management of property in the event of incapacity
    • Protection of property from the creditors of the settlor
    • Protection of property from the creditors of beneficiaries of the trust
    • Protection of property against claims by disappointed heirs
    • Protection of the beneficiary from themselves (spendthrifts)
    • Potential deferral of tax on disposition of property
    • Providing for subsequent generations
    • Privacy/confidentiality 
  •  Identify risks in establishing a trust, such as:
    • Potential loss of control of property
    • Cost
    • Complexity
    • Potential tax on deemed dispositions of assets
    • Potential for higher taxes
    • Difficulties in amending a trust, compared to a will
  • Define the status of a trust.
    • Revocable
    • Irrevocable
  • Identify who may be a trustee.
Additional Knowledge Expected of CFP Professionals
  • Explain the role of each party to a trust.  
  • Identify purposes for which a trust may be used, such as: 
    • Potential reduction in probate costs/fees 
  • Define types of trusts that may be established through the operation of law, such as:
    • Resulting trust
    • Constructive trust 
  • Explain how the types of trusts established under the operation of law may come into existence.  
  • Explain the impact of establishing a trust.
    • Revocable
    • Irrevocable 
  • Explain entitlements that a beneficiary may have with respect to assets held in trust, such as: 
    • Absolute income interest
    • Contingent income interest
    • Capital interest
    • Life interest
    • Remainder interest
    • Fixed interest
    • Discretionary interest
    • Vested and contingent interest 
  • Explain the certainties that must be present for a trust to be created.
    • Certainty of intention
    • Certainty of subject matter
    • Certainty of objects 
  • Identify the methods in which a trust may be established, such as: 
    • Expressly
    • By statute
    • Through a will
    • Through the operation of law
    • Through a legal judgment 
  • Explain advantages and disadvantages of using a corporate trustee. 
  • Explain factors to consider when contemplating the appointment of a corporate trustee, such as:
    • Location of trust and beneficiaries
    • Complexity of trust
    • Time required to manage trust
    • Expertise
    • Need for objectivity or opportunity for disputes regarding trust
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