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American College Exam HS330 Topic 1 Question 83 Discussion

Actual exam question for American College's HS330 exam

Question #: 83
Topic #: 1

[All HS330 Questions]

A father wants to accumulate funds for his 12-year-old son's college education. On the advice of his attorney, the father establishes an IRC Section 2503(c) trust and funds it with annual gifts. All the following statements concerning this arrangement are correct EXCEPT:

AThe trust must be irrevocable.

BThe father's annual gift tax exclusion must be reduced by any amount used to pay college tuition costs.

CAny accumulated income and all trust principal must be available for distribution to the son when he attains age 21.

DIn the event of the son's death prior to age 21, trust assets must either be payable to the son's estate or be subject to a general power of appointment held by the son.

Show Suggested Answer

Suggested Answer: D

by Willodean at Mar 18, 2024, 09:32 AM

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Leontine

6 months ago

I think the answer is C, because all the income and principal should be available to the son when he turns 21.

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Jani

6 months ago

I see your point, Barney. That does make sense for the trust assets to go to the son's estate.

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Barney

6 months ago

But what about option D? Shouldn't the trust assets be payable to the son's estate in case of his death?

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Luisa

6 months ago

I agree with you, Jani. It makes sense that the exclusion should remain unaffected.

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Jani

6 months ago

I think the answer is B, because the father's gift tax exclusion should not be affected by paying tuition costs.

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Iesha

6 months ago

That's also correct. It ensures that the funds are ultimately used for the son's benefit.

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Celeste

6 months ago

What about the requirement that any accumulated income and trust principal must be available for distribution to the son at age 21?

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Moira

7 months ago

That's true. It helps ensure that the funds are used for the intended purpose of college education.

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Dominque

7 months ago

I believe the father's annual gift tax exclusion must also be reduced by any amount used to pay college tuition costs.

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Maxima

7 months ago

Yes, that's correct. It's one of the requirements for the IRC Section 2503(c) trust.

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Iesha

7 months ago

I think the trust must be irrevocable, right?

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