Seventh Circuit affirms GRAT contingent spousal annuity not exempt from gift tax liability.

• Jurisdiction: United States
• Author: Kautter, David J.
• Date: 01 January 2002

The Seventh Circuit, affirming the Tax Court, held that a contingent spousal annuity in a grantor retained annuity trust (GRAT) was not a qualified interest and, thus, not exempt from gift tax liability (William A. Cook, 10/22/01).

Facts

William and Gayle Cook each created GRATs providing for annual payments to a grantor for a term of years or until the grantor's earlier death. If the grantor survives the designated term, the remaining trust property is to pass to a trust for the grantor's son. However, if the trust ends due to the grantor's death before the expiration of the designated term, the trust property is directed to a contingent marital annuity trust (CMAT). Under the CMAT, the surviving spouse would receive any annuity payment that would have been paid to the grantor had the grantor survived the remainder of the designated term set forth in the GRAT.

All of the GRATs are irrevocable in all respects, except that each grantor retains the right to revoke the...