Jul 1, 2006 12:00 PM

By Stephen K. Vetter, partner, Kozusko Harris Vetter Wareh LLP, Washington

In Focardi v. Commissioner,¹ the Tax Court has once again shown a taxpayer the door in the case of a grantor retained annuity trust (GRAT) with a revocable annuity payable to the grantor and the grantor's spouse² (a two-life annuity). The Tax Court's opinion makes it clear that the taxpayer lost; what's less clear is why. A look at the Tax Court's previous cases on two-life annuities helps to explain the confusion. And a look at the legislative history of Internal Revenue Code Section 2702 shows why the U.S. Court of Appeals for the Eleventh Circuit should reverse the Tax Court in Focardi.

The Tax Court started veering off track in its July 2000 opinion in Cook v. Comm'r.³ In this case, the court addressed a two-life annuity similar to the annuity in Focardi. Each trust in Cook provided that its grantor was to receive an annuity for a specified term of years or until the grantor's earlier death and, if the grantor died before the end of the term and the spouse survived, the spouse would receive the annuity payments that would have been paid to the grantor if the grantor had lived until the end of the term. In each case, the trust's grantor retained the right to revoke the interest payable to the spouse. At the end of the specified term, the remaining trust property was to be paid to a trust for the grantor's son.

Topics of Interest

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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