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We first consider the nature of the spousal interests
themselves. In the trusts before us, the spousal interests are
contingent upon surviving the grantor, so they may never take
effect. We, however, do not believe section 2702 permits a
transferor to reduce the value of a remainder interest by the
simple expedient of assigning a value to a retained interest
which may, in fact, never take effect.
As indicated above, the regulations provide that “The
governing instrument must fix the term of the annuity or unitrust
interest.” Sec. 25.2702-3(d)(3), Gift Tax Regs. We construe
this language to require that the term be fixed and ascertainable
at the creation of the trust. The regulations contain two
examples which illustrate this requirement, as follows:
Example 5. A transfers property to an irrevocable
trust, retaining the right to receive 5 percent of the
net fair market value of the trust property, valued
annually, for 10 years. If A dies within the 10-year
term, the unitrust amount is to be paid to A’s estate
for the balance of the term. A’s interest is a
qualified unitrust interest to the extent of the right
to receive the unitrust payment for 10 years or until
A’s prior death.
Example 6. The facts are the same as in Example 5,
except that if A dies within the 10-year term the
unitrust amount will be paid to A’s estate for an
additional 35 years. The result is the same as in
Example 5, because the 10-year term is the only term
that is fixed and ascertainable at the creation of the
interest. [Sec. 25.2702-3(e), Example (5) and Example
(6), Gift Tax Regs.]
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Last modified: May 25, 2011