- 17 -
retained interests at zero unless they take an easily
valued form--as an annuity or unitrust interest. By
doing so, the bill draws upon present law rules valuing
split interests in property for purposes of the
charitable deduction. [136 Cong. Rec. 30538-30539
(1990).]
The legislative record then goes on to explain the statute’s
intended operation:
The bill requires that the value of a remainder
interest be determined by subtracting the value of the
income interest from the value of the entire property.
The bill provides that the value of an interest
retained by the transferor or an applicable family
member is zero unless such interest is a “qualified
interest”. A qualified interest is (1) a right to
receive fixed amounts payable at least annually, (2) a
right to receive amounts payable at least annually
which are a fixed percentage of the trust’s assets
(determined annually), or (3) a non-contingent
remainder interest if all the other interests in the
trust are qualified payments.30 A qualified interest
generally would be valued under present law, e.g., by
reference to section 7520.
Thus, a person who makes a completed transfer of
nonresidential property in trust and retains (1) the
right to the income of the trust for a term of years
and (2) a reversionary right (or a testamentary general
power of appointment) with respect to trust corpus is
treated as making a transfer equal to the value of the
whole property. * * * In contrast, the creation of a
trust the only interests in which are an annuity for a
term of years and a noncontingent remainder interest is
valued under present law.
_______________
30 These interests are similar to those permitted in
charitable split-interest trusts under Section 664.
Id. at 30540 & n.30.
Based on these statements, it is clear that the principal
objective of section 2702 was to prevent undervaluation of gifted
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011