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interest for each taxable year of the term.” Sec. 25.2702-
3(b)(1)(i), Gift Tax Regs. In this context, a “fixed amount” is
either a stated dollar amount or a fixed fraction or percentage
(not to exceed 120 percent of the fixed fraction or percentage
payable in the preceding year) of the initial fair market value
of the property transferred to the trust as finally determined
for Federal tax purposes. Sec. 25.2702-3(b)(1)(ii), Gift Tax
Regs. In either case, the fixed amount must be payable
periodically but not less frequently than annually. See id.
Paragraph (d) of section 25.2702-3, Gift Tax Regs., then
adds the following requirement dealing with the term of the
annuity interest: “The governing instrument must fix the term of
the annuity or unitrust interest. The term must be for the life
of the term holder, for a specified term of years, or for the
shorter (but not the longer) of those periods.” Sec. 25.2702-
3(d)(3), Gift Tax Regs. Furthermore, the trust instrument must
also prohibit distributions from the trust to or for the benefit
of any person other than the holder of the qualified annuity
interest during the term of the qualified interest. See sec.
25.2702-3(d)(2), Gift Tax Regs.
II. Contentions of the Parties
Respondent contends that in establishing each GRAT,
petitioner created three separate and distinct interests: (1)
The annuity payable to her during her lifetime, (2) the
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Last modified: May 25, 2011