Patricia A. Schott - Page 9

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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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