Study guide
8.3 Trusts & Estates
Series 65 Uniform Investment Adviser Law
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1 Introduction
About the Series 65 How to Use This Guide
2 Chapter 1: Economic Factors & Business Cycles
1.1 Business Cycles 1.2 Monetary Policy 1.3 Fiscal Policy 1.4 Inflation & Deflation 1.5 Interest Rates & Yield Curves 1.6 Global Economic Factors
3 Chapter 2: Financial Reporting & Analytical Methods
2.1 Financial Statements Overview 2.2 Accounting Fundamentals 2.3 SEC Filings & Annual Reports 2.4 Financial Ratios 2.5 Time Value of Money 2.6 IRR and NPV 2.7 Descriptive Statistics
4 Chapter 3: Types of Risk
3.1 Systematic (Market) Risk 3.2 Unsystematic (Company-Specific) Risk 3.3 Interest Rate & Reinvestment Risk 3.4 Inflation & Currency Risk 3.5 Liquidity Risk & Opportunity Cost 3.6 Risk Measurement & Portfolio Theory
5 Chapter 4: Cash Equivalents & Fixed Income Securities
4.1 Cash & Cash Equivalents 4.2 Treasury Securities 4.3 Agency Securities 4.4 Corporate Bonds 4.5 Municipal Bonds 4.6 Bond Pricing & Yields
6 Chapter 5: Equity Securities
5.1 Common Stock 5.2 Preferred Stock 5.3 Shareholder Rights & Corporate Actions 5.4 Equity Valuation Methods 5.5 ADRs, REITs & Other Equity Securities
7 Chapter 6: Pooled Investments
6.1 Mutual Funds 6.2 Mutual Fund Costs & Fees 6.3 Exchange-Traded Funds (ETFs) 6.4 Closed-End Funds & UITs 6.5 Hedge Funds & Private Equity
8 Chapter 7: Derivatives, Alternative Investments & Insurance Products
7.1 Options Basics 7.2 Options Strategies 7.3 Alternative Investments 7.4 Annuities 7.5 Life Insurance Products
9 Chapter 8: Client Types & Profiles
8.1 Individual Clients 8.2 Business Entity Clients 8.3 Trusts & Estates 8.4 Accredited & Qualified Investors 8.5 Suitability & Know Your Customer
10 Chapter 9: Portfolio Theory & Capital Markets
9.1 Modern Portfolio Theory 9.2 Capital Asset Pricing Model (CAPM) 9.3 Efficient Market Hypothesis 9.4 Risk & Performance Measures 9.5 Asset Allocation
11 Chapter 10: Portfolio Management Strategies
10.1 Investment Styles 10.2 Portfolio Management Techniques 10.3 Fixed Income Strategies 10.4 Return Calculations
12 Chapter 11: Tax Considerations & Retirement Planning
11.1 Capital Gains & Investment Taxes 11.2 Retirement Plans Overview 11.3 Individual Retirement Accounts (IRAs) 11.4 Education Savings Plans 11.5 Distributions & RMDs
13 Chapter 12: ERISA, Special Accounts & Performance Measures
12.1 ERISA Requirements 12.2 Special Account Types 12.3 Performance Measures & Reporting 12.4 QDROs & Special Situations
14 Chapter 13: Regulation of Investment Advisers
13.1 Investment Advisers Act of 1940 13.2 Registration Requirements 13.3 Recordkeeping Requirements 13.4 Custody Requirements 13.5 Exempt Reporting Advisers
15 Chapter 14: Regulation of Investment Adviser Representatives
14.1 IAR Definition & Requirements 14.2 Registration & Post-Registration 14.3 IARs of Federal Covered Advisers
16 Chapter 15: Regulation of Broker-Dealers & Agents
15.1 Broker-Dealer Definition 15.2 Agent Registration 15.3 Regulation Best Interest
17 Chapter 16: Securities Registration & Exemptions
16.1 Uniform Securities Act 16.2 Securities Registration Methods 16.3 Exempt Securities 16.4 Exempt Transactions
18 Chapter 17: Communications & Client Relationships
17.1 Advertising Rules 17.2 Social Media & Electronic Communications 17.3 Client Agreements & Disclosure 17.4 Proxy Voting & Other Obligations
19 Chapter 18: Ethics & Fiduciary Obligations
18.1 Fiduciary Duties 18.2 Prohibited Practices 18.3 Senior & Vulnerable Adult Protection 18.4 AML & Compliance Programs
8.3 Trusts & Estates
Key Takeaways Explain This Topic AI
Revocable trusts avoid probate but provide no estate tax benefits.
Irrevocable trusts remove assets from the estate and cannot be changed.
UPIA evaluates the entire portfolio and emphasizes diversification.
Prudence is judged at the time of the decision, not in hindsight.
Trustees can delegate investment duties but must monitor delegates.
Last updated: December 2025
Trusts and estates are important client types with specific legal requirements and fiduciary obligations. Investment advisers must understand trust structures and the duties governing their management.
- Trust Fundamentals
- Trust Structure
Every trust involves four key elements:
- Role Description Also Called
- Grantor Creates the trust and transfers assets into it Settlor, Trustor, Donor
- Trustee Manages trust assets according to trust document Fiduciary
- Beneficiary Receives benefits from the trust —
- Trust Document Legal instrument governing trust operations Trust Agreement, Declaration of Trust
- Income vs. Remainder Beneficiaries
Many trusts distinguish between:
- Income Beneficiaries : Receive income generated by trust assets during trust term
- Remainder Beneficiaries : Receive trust principal when trust terminates
Important : Trustees must balance the interests of BOTH types of beneficiaries (duty of impartiality).
- Types of Trusts
- Revocable Living Trust
- Feature Details
- Can be changed? Yes, grantor can modify or revoke
- Who is trustee? Often the grantor during lifetime
- Probate Assets AVOID probate at death
- Estate taxes NO reduction during grantor's lifetime
- At grantor's death Becomes IRREVOCABLE
Primary Benefit : Probate avoidance, not tax savings. Assets remain in grantor's estate for tax purposes.
Irrevocable Trust
- Feature Details
- Can be changed? Generally NO (limited exceptions)
- Who is trustee? Cannot be the grantor
- Probate Assets avoid probate
- Estate taxes Assets REMOVED from grantor's estate
- Gift tax May apply when trust is funded
Primary Benefit : Estate tax reduction and asset protection. The irrevocability is the trade-off for tax benefits.
- Other Common Trust Types
- Testamentary Trust : Created through a will; takes effect at death; does NOT avoid probate
Charitable Remainder Trust (CRT) : Income to donor/beneficiary for life; remainder to charity; provides income tax deduction
- Special Needs Trust : Provides for disabled beneficiary without affecting government benefits eligibility
- Spendthrift Trust : Protects assets from beneficiary's creditors; beneficiary cannot assign future payments
- The Prudent Investor Rule
The Uniform Prudent Investor Act (UPIA) , adopted in 48 states, modernized fiduciary investment standards. Key principles:
Five Fundamental Changes from Old "Prudent Man" Rule
- Old Rule UPIA Modern Rule
- Judge each investment individually Evaluate investments as part of TOTAL PORTFOLIO
- Some investments categorically prohibited NO investment is per se prohibited
- Speculation always imprudent Risk/return tradeoff is CENTRAL consideration
- Delegation prohibited Delegation is PERMITTED (even encouraged)
- Preservation of principal paramount Total return approach acceptable
- UPIA Core Requirements
- Portfolio Standard : Consider the portfolio as a whole, not individual investments
- Risk/Return Analysis : Balance risk and return appropriate for trust purposes
- Diversification : Required UNLESS imprudent under circumstances
- Cost Consciousness : Consider investment costs and expenses
- Delegation Permitted : May delegate to qualified professionals
- Judging Prudence
Critical Point : Compliance with the prudent investor rule is determined by facts and circumstances AT THE TIME of the decision, NOT by hindsight.
A trustee who follows proper process is not liable for losses if the market declines after a prudent decision was made.
Trustee Fiduciary Duties
Trustees owe the highest level of duty to beneficiaries:
- Duty of Loyalty
- Act solely in the interest of beneficiaries
- No self-dealing
- No conflicts of interest
- Cannot benefit personally from trust transactions
- Duty of Care
- Exercise skill and prudence
- Act as a prudent investor would
- Make informed decisions
- Monitor investments regularly
- Duty of Impartiality
- Balance interests of income and remainder beneficiaries
- Cannot favor one beneficiary over another
- Consider both current income and long-term growth
- Duty to Diversify
- Spread risk across different investments
- Unless trust document specifies otherwise
- Or circumstances make concentration prudent
- Duty to Inform
- Keep beneficiaries reasonably informed
- Provide accounting information
- Respond to reasonable requests
- Estate Accounts
- Types of Estate-Related Accounts
- Executor/Personal Representative : Named in will to administer estate
- Administrator : Court-appointed when no will exists
- Probate Estate : Assets going through court-supervised process
- Key Considerations
- Authority derived from court (Letters Testamentary or Letters of Administration)
- Investment restrictions may exist in will or by law
- Goal often to preserve assets during administration
- Timely distribution to heirs
- Both income tax and estate tax implications
- On the Exam
Series 65 frequently tests:
- Distinguishing revocable (no tax benefit) from irrevocable (tax benefit) trusts
- Understanding the prudent investor rule evaluates the ENTIRE portfolio
- Knowing that trustees can now delegate investment authority
- Recognizing the duty of impartiality between income and remainder beneficiaries
- Key Takeaways
- Revocable trusts avoid probate but provide NO estate tax benefits
- Irrevocable trusts remove assets from the estate but cannot be changed
- UPIA evaluates investments by portfolio performance, not individual securities
- Diversification is required unless specifically imprudent
- Prudence is judged at the time of decision, not by hindsight
- Trustees can delegate but must monitor the delegate