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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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Last modified: May 25, 2011