Patricia A. Schott - Page 10

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          Gift Tax Regs., which provides that the term of the annuity                 
          interest must be fixed by the trust instrument for one of three             
          terms:  (1) The life of the term holder, (2) a specified term of            
          years, or (3) the shorter (but not the longer) of those periods.            
          For these reasons, the spousal interests were valued at zero                
          under section 2702(a)(2)(A).  See id. at 24-25.  Petitioners                
          acknowledge that Cook is applicable to this issue but argue that            
          Cook was incorrectly decided.  However, we find no reason to                
          reach a result that is different from the result in Cook.                   
               As part of the analysis in Cook, the Court relied on                   
          section 25.2702-2(d)(1), Examples (6) and (7), Gift Tax Regs.               
          Examples (6) and (7) are as follows:                                        
                    Example 6.  A transfers property to an irrevocable                
               trust, retaining the right to receive the income for                   
               10 years.  Upon expiration of 10 years, the income of                  
               the trust is payable to A’s spouse for 10 years if                     
               living.  Upon expiration of the spouse’s interest, the                 
               trust terminates and the trust corpus is payable to A’s                
               child.  A retains the right to revoke the spouse’s                     
               interest.  Because the transfer of property to the                     
               trust is not incomplete as to all interests in the                     
               property (i.e., A has made a completed gift of the                     
               remainder interest), section 2702 applies.  A’s power                  
               to revoke the spouse’s term interest is treated as a                   
               retained interest for purposes of section 2702.                        
               Because no interest retained by A is a qualified                       
               interest, the amount of the gift is the fair market                    
               value of the property transferred to the trust.                        
                    Example 7.  The facts are the same as in                          
               Example 6, except that both the term interest retained                 
               by A and the interest transferred to A’s spouse                        
               (subject to A’s right of revocation) are qualified                     
               annuity or unitrust interests.  The amount of the gift                 
               is the fair market value of the property transferred to                

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