Accredited Wealth Management Advisor Practice Exam

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What is a distinguishing feature of a Section 2503(c) trust compared to a support trust?

  1. The gift tax annual exclusion is available for transfers to a Section 2503(c) trust, but is not available for a support trust.

  2. A support trust must distribute assets to the beneficiary by age 21, while a Section 2503(c) trust may continue indefinitely.

  3. Gifts to a support trust are present interests, while gifts to a Section 2503(c) trust are future interests.

  4. A support trust is revocable, while a Section 2503(c) trust is irrevocable.

The correct answer is: The gift tax annual exclusion is available for transfers to a Section 2503(c) trust, but is not available for a support trust.

A Section 2503(c) trust is specifically designed to qualify for the gift tax annual exclusion, allowing transfers into the trust to be excluded from the donor’s taxable gifts up to the annual exclusion limit. This is significant because it enables individuals to make gifts without incurring a gift tax liability, making it an attractive option for individuals looking to provide for a child's future. The main characteristic that distinguishes a Section 2503(c) trust from a support trust is centered around the treatment of contributions and distributions. In a Section 2503(c) trust, the beneficiary must have the right to withdraw the assets or income from the trust when they reach the age of 21. Until that age, the trust can hold the funds without needing to distribute them, effectively providing flexibility in the management of the assets for the beneficiary's benefit. In contrast, a support trust is typically designed to make distributions only for the beneficiary's health, education, maintenance, or support, without an explicit age threshold for distribution like that of the Section 2503(c) trust. Therefore, the distinguishing feature highlighted in the correct choice emphasizes the gift tax implications and the eligibility for the annual exclusion due to the structure of the Section 2503(c) trust. The other options

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