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death or the expiration of the stated term. If the grantor died
before the expiration of the stated term of years and was not
survived by the spouse, the term of the annuity ended upon the
death of the grantor. In each trust, the grantor reserved the
power to revoke the interest of the spouse. The taxpayers argued
that the value of the remainder interest in each GRAT, of which
the grantor made a taxable gift, was the value of the assets that
were contributed to the trust, reduced by the value of a
dual-life annuity. See id. at 16-20.
In Cook, the Court decided that, because the spousal
interest in each GRAT was not fixed and ascertainable at the
inception of the GRAT, the spousal interest was contingent on the
spouse’s surviving the grantor. Furthermore, the Court held that
each spousal interest was not a qualified interest, because the
spousal interest was subject to revocation by the grantor, and,
therefore, if treated as a retained interest of the grantor
pursuant to section 25.2702-2(a)(5), Gift Tax Regs., the
requirement of section 25.2702-3(d)(3), Gift Tax Regs., would not
be met. See Cook v. Commissioner, supra at 23-26.
As a retained interest of the grantor, the possibility
existed that each retained annuity would extend for the life of
the spouse, which could be beyond the life of the term holder,
i.e., the grantor, but less than a specified term of years.
Thus, each retained interest violated section 25.2702-3(d)(3),
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