Audrey J. Walton - Page 17

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               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                     
          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           

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