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died and the spouse received the annuity, distribution of income
or principal could not be made to any person other than the
spouse during the life of the spouse. Each GRAT was irrevocable
except that the grantor retained the right to revoke the
successor interest of his or her spouse in the annuity.
Each GRAT provided that the grantor intended to create a
“qualified interest”, as defined in section 2702(b)(1), and that
the provisions of the GRAT document were to be construed in
accord with that intent. Each GRAT document further provided
that, if the initial fair market value of the assets that were
contributed was incorrectly determined, the trustee would either
pay to or recover from the grantor or his or her spouse the
amount necessary to account for the undervaluation or
overvaluation of the assets within a reasonable period after the
final Federal tax determination of the correct value. Each GRAT
document also prohibited commutation of the annuity interest and
additional contributions to the GRAT’s, after the initial
funding.
Discussion
Petitioners assert that the interests in the annuities that
were given to each spouse are qualified interests under section
2702 and that the retained interests are single annuities based
on two lives, referred to as dual-life annuities. Petitioners
contend that the retained interests in the annuities should be
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Last modified: May 25, 2011