Paralegal Advanced Competency Exam (PACE) Practice Exam

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Prepare for the Paralegal Advanced Competency Exam with confidence. Enhance your knowledge with a range of quizzes, multiple choice questions, and detailed explanations. Equip yourself with the skills necessary to excel in your paralegal career!

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What characterizes a Crummey Trust?

It can be revoked at any time by the grantor
Contributions to it qualify for annual exclusions
It is solely designed for minor beneficiaries
It does not benefit from tax exemptions

The correct answer is: Contributions to it qualify for annual exclusions

A Crummey Trust is characterized primarily by its ability to enable contributions that qualify for annual gift tax exclusions. This is achieved by allowing the beneficiaries to withdraw contributions made to the trust for a limited period after each funding event. By doing so, the grantor can make gifts to the trust's beneficiaries, which are treated as present interest gifts for tax purposes. As a result, these contributions can take advantage of the annual gift tax exclusion, allowing the grantor to transfer wealth without incurring gift taxes, provided they meet the required criteria. In contrast, the features suggesting that a Crummey Trust can be revoked at any time by the grantor, is solely designed for minor beneficiaries, or does not benefit from tax exemptions do not accurately characterize its primary attributes. While a Crummey Trust can be structured in various ways, its core purpose and benefit hinge on facilitating annual exclusions through present interest gifts, making option B the defining characteristic of a Crummey Trust.