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!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What is the primary purpose of a Crummey Trust?

To evade taxation on gifts
To allow annual exclusion on contributions
To provide for disabled beneficiaries
To establish a living trust

The correct answer is: To allow annual exclusion on contributions

The primary purpose of a Crummey Trust is to allow annual exclusion on contributions made to the trust. This type of trust is specifically designed to enable contributors to make gifts to beneficiaries while taking advantage of the annual gift tax exclusion provided by the IRS. Under this arrangement, beneficiaries are given the right to withdraw contributions made to the trust for a limited time, which qualifies the gifts for the annual exclusion amount. As a result, contributions to a Crummey Trust can be excluded from the donor's taxable gifts up to the annual limit, making it a useful tool for estate planning. This unique feature of allowing withdrawals helps satisfy the requirement that a gift be present-interest, meaning the recipient has immediate and unrestricted access to the gift. Consequently, the trust provides a way to maximize tax-efficient gifting while still maintaining the benefits of the trust structure for the eventual distribution of the assets.