-22-
interest that is a qualified interest. See current section
25.2702-3(e), Example (8), Gift Tax Regs. This new example is
consistent with section 25.2702-2(d)(1), Example (7), Gift Tax
Regs., on which respondent relies here. A second example added
to the regulations; i.e., current section 25.2702-3(e), Example
(9), Gift Tax Regs., further illustrates that revocable spousal
interests such as those here are not qualified interests. New
Example (9) states:
Example 9. (i) A transfers property to an
irrevocable trust, retaining the right to receive 6
percent of the initial net fair market value of the
trust property for 10 years, or until A's prior death.
If A survives the 10-year term, the trust terminates
and the trust corpus is payable to A's child. If A
dies prior to the expiration of the 10-year term, the
annuity is payable to B, A's spouse, if then living,
for the balance of the 10-year term, or until B's prior
death. A retains the right to revoke B's interest.
Upon expiration of B's interest (or upon A's death if A
revokes B's interest or if B predeceases A), the trust
terminates and the trust corpus is payable to A's
child. As is the case in Example 8, A's retained
annuity interest (A's right to receive the annuity for
10 years, or until A's prior death) is a qualified
annuity interest under paragraphs (b) and (d) of this
section. However, B's interest does not meet the
requirements of paragraph (d) of this section. The
term of B's annuity is not fixed and ascertainable at
the creation of the trust, because it is not payable
for the life of B, a specified term of years, or for
the shorter of those periods. Rather, B's annuity is
payable for an unspecified period that will depend upon
the number of years left in the original term after A's
death. Further, B's annuity is payable only if A dies
prior to the expiration of the 10-year term. Thus,
payment of B's annuity is not dependent solely on B's
survival, but rather is dependent on A's failure to
survive.
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