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The issue for decision in these consolidated cases is
whether a successor annuity interest of a spouse in a retained
two-life annuity is a qualified interest that is subject to
valuation pursuant to section 2702. Unless otherwise indicated,
all section references are to the Internal Revenue Code in effect
on the date of the transfers, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Background
The parties submitted these cases fully stipulated pursuant
to Rule 122. The stipulated facts are incorporated by this
reference. At the time of the filing of the petitions in these
cases, petitioners resided in Los Altos, California. Petitioners
owned 90 percent of the outstanding stock of SCS Development
Company (company), a closely held corporation that develops,
constructs, and sells single-family houses.
On May 31, 1994, Stephen C. Schott (Mr. Schott) created the
Stephen C. Schott 1994 Qualified Annuity Trust, a grantor
retained annuity trust (GRAT) in which Mr. Schott was both the
grantor and trustee. On that same day, Patricia A. Schott
(Mrs. Schott) created the Patricia A. Schott 1994 Qualified
Annuity Trust, a GRAT in which Mrs. Schott was both the grantor
and trustee. Each GRAT was funded by 11,400 shares of stock in
the company that were valued at $5,394,929.50.
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Last modified: May 25, 2011