-15-
required by the regulations. The term of the spousal annuity, if
it does become payable on account of the grantor’s death within
the 2- or 4-year term, also is dependent on when the grantor dies
and, in particular, on how much of the term remains at the
grantor’s death. Thus, neither the vesting nor the duration of
the spousal interests is fixed and ascertainable upon the
inception of the trusts in that both depend on the death of the
grantor within a specified period. Given that the regulations
require that “The governing instrument * * * fix the term of the
annuity or unitrust interest”, sec. 25.2702-3(d)(3), Gift Tax
Regs., we believe that the term of the spousal interests must be
fixed and ascertainable upon the inception of the trusts in order
to be qualified interests, see Cook v. Commissioner, 115 T.C. at
23-26. In contrast with petitioners’ reading of section 2702, we
do not read section 2702 or the regulations thereunder to allow
transferors such as decedent and Focardi to reduce the value of a
remainder interest simply by assigning a value to a spousal
interest which may never take effect. See id.
Each spousal interest also is not a qualified interest in
that it fails the duration requirement of section
25.2702-3(d)(3), Gift Tax Regs., that a term extend for the life
of the term holder, for a specified term of years, or for the
shorter of those periods. The instruments establishing the GRATs
stand in marked contrast to section 25.2702-2(d)(1), Example (7),
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011