Free CISI CWM AWM Practice Questions: Trusts and Estate Planning

CISI means Chartered Institute for Securities & Investment. CWM means Chartered Wealth Manager, and this page is for the Applied Wealth Management paper. Use this focused CISI CWM Applied Wealth page as a short practice test for Trusts and Estate Planning. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

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Sample questions

These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

A wealth manager is updating the client record for the estate of Mr Howard, who died last year.

Family and estate facts:

• His widow, Anna, is 67 and financially cautious. She relies on investment income to supplement her pension.
• The trust fund is a £1.2 million balanced portfolio producing about £42,000 of annual income.
• Mr Howard’s adult children are financially independent and are intended to receive the capital after Anna’s death.
• There is no charitable purpose and the trustees cannot choose who receives the annual income.

Will trust excerpt:

My trustees shall hold the portfolio for my wife Anna for her lifetime and pay the whole net income to her. On Anna’s death, the remaining capital shall pass equally to my children.

Which type of trust is most clearly described by these facts?

• A. Bare trust
• B. Charitable trust
• C. Interest-in-possession trust
• D. Discretionary trust

Best answer: C

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: An interest-in-possession trust gives a beneficiary an immediate entitlement to trust income, even though that beneficiary may not be entitled to the capital. Here, Anna must receive the whole net income from the portfolio during her lifetime, while the capital is preserved for the children after her death. That separates the income interest from the eventual capital entitlement. A bare trust would give the beneficiary an absolute entitlement to both income and capital. A discretionary trust would allow trustees to decide which beneficiaries receive income or capital, but the will removes discretion over Anna’s income. A charitable trust requires exclusively charitable purposes, which are absent here.

• A bare trust is wrong because Anna is not absolutely entitled to the capital.
• A discretionary trust is wrong because the trustees must pay all net income to Anna and cannot choose another income recipient.
• A charitable trust is wrong because the arrangement benefits named family members, not exclusively charitable purposes.

Anna has a present right to the trust income during her lifetime, while the capital passes to others later.

Question 2

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Marion, age 68, is reviewing a trust she set up for her granddaughter, Sophie, age 12.

Case extract:

• Marion transferred cash and quoted shares to trustees in 2019.
• Sophie’s parents have made no contributions to the trust.
• Marion, Marion’s spouse, and Sophie’s parents cannot benefit from the trust.
• In the current tax year, the trust received dividends of £3,800, bank interest of £450, and realised a chargeable gain of £7,000.
• No income has been paid out this year.

Trust deed extract:

The trustees hold the trust fund for Sophie absolutely. While Sophie is under 18, the trustees may apply income or capital for her benefit or retain it for her.

Which trust-tax interpretation best fits these facts?

• A. Treat it as a bare trust: Sophie is taxed on the dividends, interest and chargeable gain as they arise, using her own allowances; the parental settlement rules are not triggered on these facts.
• B. Treat it as an interest-in-possession trust: the trustees deduct tax from income for Sophie, but the capital gain remains assessable on the trustees.
• C. Treat Marion as taxable under settlor-interested rules because the beneficiary is a minor and the income has not yet been paid out.
• D. Treat it as a discretionary trust: the trustees are taxed on retained income and gains, with Sophie taxed only if the trustees later appoint income to her.

Best answer: A

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A bare trust arises where the beneficiary is absolutely entitled to both income and capital, with trustees holding legal title and administering the assets. For tax purposes, the beneficiary is normally treated as owning the underlying assets. That means income and chargeable gains are assessed on Sophie as they arise, even if trustees retain the funds while she is under 18. The fact that she is a minor does not itself make the trustees or Marion taxable. The parental settlement rules are not engaged because Sophie’s parents did not provide the funds. The trust is not discretionary, because the trustees have no power to choose among beneficiaries or vary Sophie’s entitlement. It is also not merely an interest-in-possession arrangement, because Sophie’s entitlement extends to capital as well as income.

• Discretionary-trust treatment fails because Sophie has a fixed absolute entitlement and there is no class of potential beneficiaries.
• Interest-in-possession treatment is not the best fit because Sophie is entitled to capital as well as income.
• Settlor-interested treatment is unsupported because Marion and her spouse are excluded, and the parental settlement issue does not arise from a grandparent’s contribution.

Sophie has an absolute beneficial entitlement to income and capital, and no parent settled the funds, so tax follows her beneficial ownership.

Question 3

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

A married couple, both in their late 60s, are reviewing estate planning for surplus investments.

Key facts:

• Their retirement income and emergency cash needs are already covered.
• They want a £300,000 investment portfolio to benefit children and grandchildren over the next 20 years.
• Two grandchildren are minors, and the couple would like future grandchildren to be capable of benefiting.
• They do not want any beneficiary to have an automatic right to capital at age 18.
• They are willing to give up personal access to the settled assets and accept trustee administration and possible trust tax charges.

Which course of action is the single best fit for their intergenerational planning objectives?

• A. Keep the portfolio personally and leave fixed legacies in their wills to avoid trust administration during lifetime.
• B. Settle an affordable amount into a discretionary trust with appropriate trustees and a letter of wishes.
• C. Make outright gifts to the grandchildren now so the assets are immediately outside the couple’s control.
• D. Use bare trusts for each current grandchild because the tax treatment is usually simpler than a discretionary trust.

Best answer: B

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A trust can support intergenerational planning when the clients need more than a simple tax transfer. Here, the decisive factors are control, flexibility, and timing. A discretionary trust allows trustees to decide when and how capital or income is applied, can include a class of beneficiaries such as children, current grandchildren, and future grandchildren, and avoids an automatic entitlement for minors at age 18. It also suits clients who can afford to give up access to the assets. The clients must understand trustee duties, administration, and the possibility of relevant property regime charges, but those costs may be justified where family control and flexibility are central objectives.

• Outright gifts may be effective for simple wealth transfer, but they do not preserve control over timing or protect against premature access.
• Bare trusts are simple, but the beneficiary is fixed and becomes absolutely entitled at 18 in England and Wales.
• Will legacies retain lifetime control, but they do not meet the objective of flexible lifetime provision across generations.

A discretionary trust provides trustee control, flexibility over beneficiaries, and the ability to support minors and future beneficiaries without giving automatic entitlement.

Question 4

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Margaret signs a trust deed and transfers a £240,000 quoted-investment portfolio into it. She appoints Oliver and Priya as trustees.

The deed states that all net income must be paid equally to four named grandchildren. In the first year, the portfolio receives £12,400 income and the trustees pay £1,600 administration expenses. Ignore tax.

Which interpretation of the arrangement is correct?

• A. Margaret is the settlor; Oliver and Priya are trustees who hold legal title to the £240,000 portfolio for the grandchildren; the beneficiaries share net income of £10,800, so each receives £2,700.
• B. Oliver and Priya are beneficiaries because they control the £240,000 portfolio; the grandchildren are only potential objects; net income of £10,800 is retained by the trustees.
• C. The trust itself is the settlor and legal owner of the £240,000 portfolio; Margaret is a beneficiary; the £12,400 income is split four ways with no deduction.
• D. Margaret remains the legal owner because she provided the £240,000 portfolio; Oliver and Priya are merely agents; the grandchildren each receive £3,100 from gross income.

Best answer: A

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A trust separates legal ownership from beneficial enjoyment. The settlor is the person who creates the trust and transfers property into it. The trustees hold legal title and must administer the trust property according to the trust deed and their fiduciary duties. The beneficiaries are the persons entitled to benefit from the trust property or income. Here, Margaret is the settlor, the £240,000 portfolio is trust property, Oliver and Priya are trustees, and the four grandchildren are income beneficiaries. The income calculation is straightforward: £12,400 income less £1,600 expenses gives £10,800 net income. Dividing this equally among four beneficiaries gives £2,700 each.

• Treating Margaret as continuing legal owner ignores that the trust transfer places legal title with the trustees.
• Treating trustees as beneficiaries confuses control and administration with beneficial entitlement.
• Treating the trust itself as settlor or legal owner is incorrect in this context; the trust is a legal relationship, not the person who created it.

Margaret created the trust by transferring property, the trustees hold and administer it for the beneficiaries, and net income is £12,400 less £1,600, divided by four.

Question 5

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

A wealth manager is reviewing the Patel family’s arrangements after the sale of a family company.

Client facts:

• Sale proceeds are expected to be about £180 million.
• The family has UK residential property, offshore investments, two family trusts, and a planned charitable foundation.
• They want investment oversight, tax and estate-planning coordination, family governance, and administration across three generations.
• They place high value on confidentiality and control over staff and external advisers.
• They are willing to bear the cost of a dedicated in-house team.

Which response best explains the family-office concept and the most suitable category?

• A. A family office is a professional trustee service; a single-family office best fits only where the main purpose is to act as trustee of family trusts.
• B. A family office is mainly a discretionary portfolio manager; a multi-family office best fits because it pools investments for several families to improve market access.
• C. A family office is an integrated structure for coordinating a wealthy family’s financial, administrative, succession, and advisory affairs; a single-family office best fits because it serves one family with dedicated resources and control.
• D. A family office is a tax shelter for family assets; a multi-family office best fits because it removes the need for separate tax, legal, and investment advisers.

Best answer: C

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A family office is not simply an investment product or a tax structure. It is an organisational arrangement used by wealthy families to coordinate investment management, reporting, tax, estate planning, philanthropy, administration, family governance, and external advisers. The two main categories are single-family offices and multi-family offices. A single-family office serves one family and is usually justified where the wealth, complexity, desire for confidentiality, and need for control can support a dedicated team. A multi-family office serves several families, sharing infrastructure and professional resources, often at lower cost but with less exclusive control. The Patel family’s scale of wealth, trusts, charitable plans, multi-generational governance needs, confidentiality preference, and willingness to pay for dedicated staff point to a single-family office.

• Treating a family office as only a discretionary portfolio manager misses its wider coordination, governance, administration, and succession role.
• Treating it as mainly a trustee service is too narrow, even though trusts may be part of the wider family-office remit.
• Describing it as a tax shelter is inaccurate; tax coordination may be involved, but lawful planning and administration are not the same as sheltering assets.

The facts point to a single-family office because one very wealthy family wants bespoke, confidential, integrated coordination and can fund dedicated resources.

Question 6

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

A wealth manager receives an urgent instruction relating to a private client account.

Client facts:

• Mr Hargreaves, aged 78, has full mental capacity and is travelling overseas.
• His discretionary portfolio is managed for income and capital preservation.
• His nephew is a salaried family-office administrator with written authority only to receive reports and arrange meetings.
• There is no registered lasting power of attorney or court-appointed deputy.
• The nephew instructs the firm to sell £200,000 of gilts and transfer the cash to a company he controls, saying Mr Hargreaves will approve it later.
• The client agreement requires verified written client authority for payments to new third parties.

What is the single best response?

• A. Proceed if the nephew signs an indemnity confirming that Mr Hargreaves will ratify the transaction later.
• B. Sell the gilts because the account is discretionary, but hold the cash until Mr Hargreaves returns.
• C. Do not act on the nephew’s instruction; obtain verified authority from Mr Hargreaves or a valid legal representative before any sale or third-party payment.
• D. Treat the nephew as having apparent authority because he works for the family office and already receives portfolio reports.

Best answer: C

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: An agent can bind a principal only when acting within the authority given, or where the principal has held the agent out as having the relevant authority. Here, the nephew’s written authority is narrow: receiving reports and arranging meetings. It does not cover investment instructions, asset sales, or third-party payments. The discretionary mandate gives the wealth manager authority to manage investments for Mr Hargreaves; it does not let an unauthorised third party redirect client money. Because the proposed transfer is to a company controlled by the nephew, the firm should also be alert to conflict, undue influence, and financial-crime concerns. The proper course is to verify instructions directly with Mr Hargreaves or require a valid legal authority such as a registered financial affairs LPA or deputyship before acting.

• Discretionary investment authority does not convert an unauthorised family-office employee into a person who can request withdrawals.
• An indemnity from the nephew cannot create authority where the client has not given it.
• Access to reports and meeting arrangements is not enough to show apparent authority for trades or third-party payments.

The nephew lacks actual authority to bind the client, and the proposed payment also conflicts with the account mandate and creates a third-party payment risk.

Question 7

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Mrs Patel is UK resident and an additional-rate taxpayer. She is creating a discretionary trust for her adult children and grandchildren.

Planned transfer:

• She will transfer quoted shares worth £600,000 into the trust.
• Her base cost is £440,000, so the unrealised gain is £160,000.
• Mrs Patel and her spouse are excluded from benefiting.
• The transfer is a chargeable lifetime transfer for IHT, and hold-over relief is available if Mrs Patel and the trustees make a joint claim.
• The trust has the full trustee CGT annual exempt amount of £1,500, and the trustee CGT rate on shares is 20%.

Which is the single best summary of the CGT position?

• A. Mrs Patel must pay CGT immediately on the gain after her personal annual exempt amount because hold-over relief applies only to trading business assets.
• B. Mrs Patel is treated as disposing of the shares at market value, but a joint hold-over relief claim can defer the £160,000 gain; the trustees then take a reduced base cost and pay CGT on a later disposal after the trust exemption at 20%.
• C. The transfer is automatically on a no-gain/no-loss basis, so the trustees acquire the shares at Mrs Patel’s base cost and no CGT can arise until capital is appointed to beneficiaries.
• D. The trustees pay CGT immediately on the £160,000 gain using their £1,500 exemption, and any later sale uses the £600,000 transfer value as their base cost.

Best answer: B

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A lifetime transfer into a discretionary trust is normally a disposal by the settlor for CGT purposes at market value, even though no sale proceeds are received. Here, the facts state that the transfer is a chargeable lifetime transfer for IHT and that hold-over relief is available if jointly claimed. The practical effect is deferral, not exemption. Mrs Patel’s £160,000 gain is not taxed immediately if the claim is made, but the trustees’ acquisition cost is reduced so that the held-over gain can be taxed when the trustees later dispose of the shares. On a later trustee sale, the trustees use the trust’s CGT annual exempt amount of £1,500 and the supplied trustee rate of 20% for shares.

• No-gain/no-loss treatment is not the general rule for gifts into discretionary trusts; it is more commonly associated with transfers between spouses or civil partners.
• Treating hold-over relief as unavailable ignores the supplied fact that relief is available for this trust transfer.
• Charging the trustees immediately reverses the position: the initial deemed disposal is Mrs Patel’s, while the trustees inherit a reduced base cost if relief is claimed.

A discretionary trust transfer is a market-value disposal by the settlor, but the supplied hold-over relief defers the gain into the trustees’ base cost.

Question 8

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

A settlor transfers quoted shares into a discretionary trust for adult grandchildren.

CGT facts supplied:

Additional assumptions:

• The transfer qualifies for full CGT hold-over relief and a valid joint claim is made.
• No settlor, spouse, or civil partner can benefit from the trust.
• The trustees’ available annual exempt amount for the sale year is £1,500.
• The trustees’ CGT rate on this disposal is 20%.

Which CGT result is correct?

• A. No CGT is payable by the settlor on the transfer; the trustees pay £37,300 CGT on the later sale.
• B. No CGT is payable by the settlor on the transfer; the trustees pay £11,300 CGT on the later sale.
• C. The settlor is taxed immediately on the £130,000 gain; the trustees pay £37,300 CGT on the later sale.
• D. No CGT is payable by the settlor on the transfer; the trustees pay £37,600 CGT on the later sale.

Best answer: A

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A valid full hold-over relief claim on a qualifying transfer into the discretionary trust means the settlor’s gain is not taxed at the date of transfer. Instead, the trustees take a reduced base cost. The held-over gain is £250,000 minus £120,000, so the trustees’ base cost remains £120,000. On the later sale, net proceeds are £310,000 minus £2,000 disposal costs, giving £308,000. The trustees’ gain is therefore £188,000. After deducting the £1,500 trust annual exempt amount, the taxable gain is £186,500. At 20%, the CGT payable by the trustees is £37,300.

• Using £250,000 as the trustees’ base cost ignores the hold-over claim, which reduces their acquisition cost.
• Applying 20% to £188,000 gives £37,600, but that omits the trustees’ £1,500 annual exempt amount.
• Taxing the settlor immediately is inconsistent with the stated valid full hold-over relief claim.

The hold-over claim prevents an immediate settlor charge and leaves the trustees taxable on a £186,500 gain after costs and the trust annual exempt amount.

Question 9

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Mrs Rowe, age 82, died last weekend after two years of incapacity following a stroke.

Client extract:

• Her son Daniel held a registered property and financial affairs LPA during her lifetime.
• Daniel signed the discretionary investment management agreement in 2023 as attorney for Mrs Rowe.
• The portfolio is worth £1.1 million and is held in Mrs Rowe’s sole name.
• Mrs Rowe’s will appoints her solicitor and her daughter as executors.
• Daniel and his sister are residuary beneficiaries.

Daniel emails the wealth manager:

“As Mum’s attorney, please sell £300,000 of equities today and transfer the proceeds to my account. I will use it to deal with estate expenses and my sister can approve it later.”

What is the most appropriate response under basic contract and agency principles?

• A. Transfer the proceeds to Daniel because he is a residuary beneficiary and has stated that the money will be used for estate expenses.
• B. Sell the assets but retain the cash in the portfolio until Daniel’s sister confirms that she agrees with the transfer.
• C. Decline to act on Daniel’s attorney instruction and seek verified instructions from the authorised personal representatives before selling or transferring assets.
• D. Proceed with the sale because Daniel signed the original investment agreement as Mrs Rowe’s agent and that authority continues unless revoked by the beneficiaries.

Best answer: C

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: An agent can bind a principal only while the agent has authority to act for that principal. During Mrs Rowe’s lifetime, Daniel’s registered property and financial affairs LPA allowed him to act as her agent within its scope, including signing the investment agreement on her behalf. That did not make Daniel the owner of the assets. On Mrs Rowe’s death, the LPA authority ended. Control of the estate passes to the personal representatives, normally the executors named in the will once their authority is properly evidenced for the firm’s purposes. Daniel’s status as beneficiary does not allow him to instruct transactions or receive estate assets personally. The wealth manager should therefore avoid acting on his former attorney authority and obtain proper estate instructions before selling or transferring assets.

• Continuing to rely on Daniel’s attorney status confuses authority during Mrs Rowe’s lifetime with authority after death.
• Holding sale proceeds after acting on Daniel’s instruction still accepts an unauthorised instruction.
• Beneficiary status does not give Daniel contractual authority to bind the estate or receive portfolio proceeds personally.

Daniel’s agency authority under the LPA ended on Mrs Rowe’s death, so estate dealings require authority from the personal representatives.

Question 10

Topic: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Case extract: Maya, aged 59, is domiciled in England and Wales and has asked for an estate-planning review.

• Family: She has lived with her partner, Daniel, for 12 years. They are not married or civil partners. Maya has two adult children from a previous marriage.
• Home: Maya and Daniel own their home as tenants in common, 60% Maya and 40% Daniel.
• Other arrangements: Maya has no valid will. Her pension death-benefit nomination names Daniel. A life policy is written in trust for her children.
• Wishes: Maya wants Daniel to be able to remain in the home, her children to inherit most of her estate eventually, and a £25,000 legacy to a medical charity.

If Maya died now, which planning implication should be highlighted first?

• A. Daniel would automatically receive Maya’s 60% share of the home by survivorship, leaving only her investments to be dealt with by intestacy.
• B. Maya’s pension nomination means Daniel would receive the whole estate, so a will is unnecessary unless her pension provider rejects the nomination.
• C. Maya’s share of the home and sole assets would pass under intestacy to her children, so a valid will is needed to provide for Daniel and the charity in line with her wishes.
• D. Daniel would inherit Maya’s estate under intestacy because he has lived with her for more than two years.

Best answer: C

What this tests: Trusts, Estate Planning, Beneficiary Rights, Trust Taxation, Powers of Attorney, and Family Offices

Explanation: A valid will allows Maya to direct who receives her estate, appoint executors, create a right to occupy or life-interest structure if appropriate, and include charitable legacies. If she dies intestate in England and Wales with children but no spouse or civil partner, her estate would pass to her children under the intestacy rules. Daniel’s long cohabitation does not give him the same automatic status as a spouse or civil partner, although a separate dependency claim might be possible. The home ownership is also important: because Maya and Daniel are tenants in common, Maya’s beneficial share forms part of her estate rather than passing automatically to Daniel. Pension death benefits and the life policy trust may sit outside the estate, but they do not solve the succession of Maya’s home share and personal assets.

• Treating Daniel as a spouse ignores the legal distinction between cohabitation and marriage or civil partnership.
• Relying on the pension nomination confuses non-estate pension death benefits with assets passing under a will or intestacy.
• Assuming survivorship applies ignores that tenants in common each own a distinct beneficial share.

As an unmarried partner, Daniel has no automatic entitlement under intestacy, and tenants-in-common ownership does not pass Maya’s share by survivorship.

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