Audrey J. Walton - Page 6

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          retains an interest in such property, the value of the gift is              
          the value of the property transferred, less the value of the                
          donor’s retained interest.  See sec. 25.2512-5A(e), Gift Tax                
          Regs.; sec. 25.2512-5T(d)(2), Temporary Gift Tax Regs., 64 Fed.             
          Reg. 23224 (Apr. 30, 1999).  However, if the gift in trust is to            
          a family member (as defined in section 2704(c)(2)), the value of            
          the gift is determined subject to the limitations of section                
          2702.  See id.                                                              
               As pertinent herein, section 2702 provides:                            
               SEC. 2702.  SPECIAL VALUATION RULES IN CASE OF                         
                         TRANSFERS OF INTERESTS IN TRUSTS.                            
                    (a) Valuation Rules.--                                            
                         (1) In general.--Solely for purposes of                      
                    determining whether a transfer of an interest in                  
                    trust to (or for the benefit of) a member of the                  
                    transferor’s family is a gift (and the value of                   
                    such transfer), the value of any interest in such                 
                    trust retained by the transferor or any applicable                
                    family member * * * shall be determined as                        
                    provided in paragraph (2).                                        
                         (2) Valuation of retained interests.--                       
                              (A) In general.--The value of any                       
                         retained interest which is not a qualified                   
                         interest shall be treated as being zero.                     
                              (B) Valuation of qualified interest.--                  
                         The value of any retained interest which is a                
                         qualified interest shall be determined under                 
                         section 7520 [providing for use of valuation                 
                         tables prescribed by the Secretary for                       
                         annuities, life interests, etc.].                            

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