William A. and Gayle T. Cook, Donors - Page 17




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          Regs., that the term of the annuity must be the lesser of a term            
          of years or the life of the term holder has not been met.  Under            
          the trust terms the spousal interests create the possibility that           
          the retained annuity will extend beyond the life of the term                
          holder; i.e., the grantor.  Section 25.2702-3(d)(3), Gift Tax               
          Regs., precludes this result.                                               
               In contrast, the regulations contain examples of how                   
          revocable spousal annuity or unitrust interests may meet the                
          standards of qualified interests under section 2702(b)(1) and               
          sections 25.2702-1 and 25.2702-2, Gift Tax Regs.  Section                   
          25.2702-2(d)(1), Example (6) and Example (7), Gift Tax Regs.                
          (hereinafter Examples 6 and 7), demonstrates both how a revocable           
          spousal interest may be properly fixed and ascertainable and how            
          the total retained interest of the grantor and spouse may satisfy           
          the durational requirement.  Examples 6 and 7, which illustrate             
          petitioners’ noncompliance with these standards, are as follows:            
               Example 6.  A transfers property to an irrevocable                     
               trust, retaining the right to receive the income for 10                
               years.  Upon expiration of 10 years, the income of the                 
               trust is payable to A’s spouse for 10 years if living.                 
               Upon expiration of the spouse’s interest, the trust                    
               terminates and the trust corpus is payable to A’s                      
               child.  A retains the right to revoke the spouse’s                     
               interest.  Because the transfer of property to the                     
               trust is not incomplete as to all interests in the                     
               property (i.e., A has made a completed gift of the                     
               remainder interest), section 2702 applies.  A’s power                  
               to revoke the spouse’s term interest is treated as a                   
               retained interest for purposes of section 2702.                        
               Because no interest retained by A is a qualified                       
               interest, the amount of the gift is the fair market                    
               value of the property transferred to the trust.                        





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