Patricia A. Schott - Page 7

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               Regulations promulgated under section 2702 expand the                  
          definition of “qualified interest” in the following manner:                 
               Qualified interest means a qualified annuity interest,                 
               a qualified unitrust interest, or a qualified remainder                
               interest.  Retention of a power to revoke a qualified                  
               annuity interest * * * of the transferor’s spouse is                   
               treated as the retention of a qualified annuity                        
               interest * * *.  [Sec. 25.2702-2(a)(5), Gift Tax Regs.;                
               emphasis added.]                                                       
               “A qualified annuity interest is an irrevocable right to               
          receive a fixed amount * * * payable to (or for the benefit of)             
          the holder of the annuity interest for each taxable year of the             
          term.”  Sec. 25.2702-3(b)(1)(i), Gift Tax Regs.  The term of a              
          qualified annuity interest must be fixed and ascertainable at the           
          creation of a GRAT.  See Cook v. Commissioner, 115 T.C. 15, 23              
          (2000); sec. 25.2702-3(e), Example (6), Gift Tax Regs.  A                   
          qualified annuity interest cannot be a contingent interest that             
          may in fact never take effect.  See id.  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 that is being transferred to the trust as finally                  
          determined for Federal tax purposes.  See sec. 25.2702-                     
          3(b)(1)(ii), Gift Tax Regs.  In either case, a fixed amount must            
          be payable periodically but not less frequently than annually.              
          See id.                                                                     

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