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Example 7. The facts are the same as in Example 6,
except that both the term interest retained by A and
the interest transferred to A’s spouse (subject to A’s
right of revocation) are qualified annuity or unitrust
interests. The amount of the gift is the fair market
value of the property transferred to the trust reduced
by the value of both A’s qualified interest and the
value of the qualified interest transferred to A’s
spouse (subject to A’s power to revoke).
In Example 6, the transfer of property to the trust is not
incomplete as to all interests in the property and section 2702
therefore applies (i.e., the gift of the remainder is a completed
gift), but the retained interests--both A’s and the spouse’s--are
nevertheless not qualified interests because the retained rights
are rights to receive trust income, not annuity or unitrust
amounts.
Conversely, in Example 7, A’s interest and the revocable
spousal interest are deemed to meet the requirements for
qualified status. Under section 25.2702-2(a)(5), Gift Tax Regs.,
A’s power to revoke the spouse’s interest is treated as an
interest retained by A. The interests of both A and his or her
spouse, at the creation of the trust, are fixed and
ascertainable, and not contingent upon A’s death. A is deemed to
have retained interests, the total term of which is 20 years.
Both interests are thus properly taken into account in valuing
the remainder.
Therefore, because the spousal interests in each GRAT in the
case before us are not fixed and ascertainable at the inception
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Last modified: May 25, 2011