-38-
the income beneficiary. Essentially, the income beneficiary gets
the fruit during his life or term, and the remainderman gets the
tree at the end of the life or term.
By contrast, where the present interest is a fixed annuity,
the annuitant may receive only income, only corpus, or a
combination of income and corpus, depending on the amount of
income, if any, the trust investments have produced.
Furthermore, that mixture may change in any given year. The
value of the annuity is computed on the assumption that the trust
assets will produce income equal to an assumed interest rate.
See sec. 20.2031-7(d)(2)(iv)(A), Estate Tax Regs. The fixed
annual payment may be greater than or less than the anticipated
income. In the event the investments produce less income than
expected, the corpus of the trust may be depleted beyond the
expectations of the parties, reducing the value of the remainder
interest. Conversely, in the event the investments produce more
income than expected, the corpus of the trust may grow beyond the
expectations of the parties, increasing the value of the
remainder.
In this way, the remainder is entirely dependent on the
annuity in that it is affected by the amounts distributed to the
annuitant, and by the source of those distributions, either from
income or corpus. In contrast, a remainder interest is less
dependent on an income interest as the payments to the income
Page: Previous 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Next
Last modified: March 27, 2008