Estate of Claude C. Focardi, Deceased, Nina M. Focardi, Personal Representative - Page 12

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          portion (not to exceed 120 percent of the set portion payable in            
          the preceding year) of the initial fair market value of the                 
          property transferred to the trust as finally determined for                 
          Federal tax purposes, and that the fixed amount must be payable             
          periodically but not less frequently than annually.  See sec.               
          25.2702-3(b)(1)(ii), Gift Tax Regs.  The regulations require that           
          the trust instrument:  (1) “prohibit distributions from the trust           
          to or for the benefit of any person other than the holder of the            
          qualified annuity or unitrust interest during the term of the               
          qualified interest”, sec. 25.2702-3(d)(2), Gift Tax Regs., and              
          (2) “fix the term of the annuity or unitrust interest * * * 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.                                             
               Respondent argues that the spousal interests at issue were             
          not qualified interests because:  (1) The spousal interests were            
          contingent on the grantor’s failing to survive the applicable 2-            
          or 4-year term (in other words, the interests were not fixed and            
          ascertainable), and (2) the spousal interests were not payable              
          for the life of the term holder, for a term of years, or for the            
          shorter of those periods.  As respondent sees it, each grantor’s            
          retained annuity is a qualified interest to the extent that it is           
          payable for a term of years or the grantor’s earlier death, but             
          not to the extent it continues for the surviving spouse for the             






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Last modified: May 25, 2011