Patricia A. Schott - Page 12

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          the spouse is a qualified interest.  Thus, petitioners claim that           
          the requirement in section 25.2702-3(b)(1)(i), Gift Tax Regs.,              
          that an interest be fixed was only intended to prevent interests            
          such as the interest in section 25.2702-3(e), Example (6), Gift             
          Tax Regs., from satisfying the definition of a qualified                    
          interest.  Section 25.2702-3(e), Examples (5) and (6), Gift Tax             
          Regs., incorporates the same factual scenario:                              
                    Example 5.  A transfers property to an irrevocable                
               trust, retaining the right to receive 5 percent of the                 
               net fair market value of the trust property, valued                    
               annually, for 10 years.  If A dies within the 10-year                  
               term, the unitrust amount is to be paid to A’s estate                  
               for the balance of the term.  A’s interest is a                        
               qualified unitrust interest to the extent of the right                 
               to receive the unitrust payment for 10 years or until                  
               A’s prior death.                                                       
                    Example 6.  The facts are the same as Example 5,                  
               except that if A dies within the 10-year term the                      
               unitrust amount will be paid to A’s estate for an                      
               additional 35 years.  The result is the same as in                     
               Example 5, because the 10-year term is the only term                   
               that is fixed and ascertainable at the creation of the                 
               Reliance by petitioners on section 25.2702-2(d)(1),                    
          Example (7), Gift Tax Regs., for the proposition that a                     
          contingent interest can be a qualified interest under section               
          2702(b) is misplaced.  Petitioners misread Example (7) to include           
          a nonfixed, contingent spousal interest, on the premise that the            
          trust will only make payments to the spouse if the spouse is                
          living at the end of the grantor’s 10-year term interest.                   
          Petitioners’ interpretation of the example concentrates on the              

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