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language that reads: “Upon expiration of [A’s] 10 years, the
income of the trust is payable to A’s spouse for 10 years if
living.” Sec. 25.2702-2(d), Example (6), Gift Tax Regs.
(Emphasis added.) However, the spousal interest in Examples (6)
and (7) is a fixed, noncontingent spousal interest for a term of
10 years, and the spouse or the estate of the spouse will receive
payments from the GRAT whether or not the spouse is living at the
end of the 10-year term of the grantor.
To hold that Examples (6) and (7) contain a contingent
spousal interest would ignore other language in the examples that
states: “Upon expiration of the spouse’s interest, the trust
terminates and the trust corpus is payable to A’s child.”
Sec. 25.2702-2(d), Example (6), Gift Tax Regs. (Emphasis added.)
This sentence reflects that the remainder interest of the child
will vest only after the expiration of the 10-year term of the
spouse. The “if living” language in Example (6), relied on by
petitioners, should be interpreted to read that, if the spouse is
living at the end of the grantor’s 10-year term, annuity payments
shall be payable to the spouse, but, if the spouse is not living
at the end of the grantor’s 10-year term, the spouse’s 10-year
term interest is payable to the estate of the spouse.
Petitioners also argue that dual-life annuities should be
treated as qualified interests in valuing remainder interests in
GRAT’s because dual-life annuities are respected in valuing
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Last modified: May 25, 2011