Patricia A. Schott - Page 15

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          interest.  However, the regulations under section 2702 state that           
          the term of a qualified annuity “must be for the life of the term           
          holder, for a specified term of years, or for the shorter (but              
          not the longer) of those periods.”  Sec. 25.2702-3(d)(3), Gift              
          Tax Regs.  (Emphasis added.)  The term restrictions that are                
          found in the regulations are consistent with the purpose of                 
          section 2702, which is to deter the potential valuation abuse               
          that is inherent in using actuarial tables by making unfavorable            
          assumptions regarding certain retained rights.  See 136 Cong.               
          Rec. S15629, S15680-S15681 (daily ed. Oct. 18, 1990); Cook v.               
          Commissioner, supra at 24.  Thus, the general intent of Congress            
          to conform qualified interests in valuing GRAT’s with charitable            
          split interest trusts did not include dual-life annuities.                  
               Our holding, that the spousal interest in each GRAT that was           
          created by petitioners is not a qualified interest under                    
          section 2702(b), is distinguishable from the previous decision of           
          the Court in Walton v. Commissioner, 115 T.C. 589 (2000).  In               
          Walton, the taxpayer established two GRAT’s in which the taxpayer           
          retained annuity rights.  In the event that the taxpayer died               
          prior to the expiration of the annuity term, the remaining                  
          scheduled annuity payments were to be made to the estate of the             
          taxpayer.  The balance of the GRAT property would then be paid to           
          the remainder beneficiaries at the expiration of the annuity                
          term.  See id. at 590-591.                                                  

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