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<p class="MsoNormal"><span style="color:#1F497D">The Kite case is probably incorrectly decided on the QTIP termination issue. The transaction that was the subject of the case would not have resulted in any estate tax avoidance if the consideration received
by the spouse for the sale of the QTIP assets that had been distributed to her had not been a deferred private annuity. Under those circumstances, the rational of Kite would have led to a double tax on the same assets. The first tax is the gift tax imposed
on value of the QTIP remainder when the QTIP terminated. The second would be the estate tax imposed on the consideration received by the spouse when she sold the QTIP property to the extent appropriately allocated to the value of the remainder.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">The fact, however, that the consideration received for the sale was an annuity played no role in the decision.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D">There should be no problem with the purchase of a commercial annuity in any event. Since 100% of the annuity payments will not be treated as income, investment in an annuity will not necessarily result in
a zero value of the QTIP when the spouse dies. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
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<p class="MsoNormal" style="line-height:11.25pt"><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">CARLYN MCCAFFREY
</span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><br>
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<p class="MsoNormal" style="line-height:11.25pt"><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#00A68E">McDermott Will & Emery LLP</span></b><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"> </span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">340
Madison Avenue, New York, NY 10173-1922</span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><o:p></o:p></span></p>
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<p class="MsoNormal" style="line-height:11.25pt"><b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:#00A68E">Tel</span></b><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black"> +1 212 547 5324 </span><span style="font-size:7.5pt;font-family:"Arial",sans-serif;color:white">
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<p class="MsoNormal" style="line-height:11.25pt"><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black">Ellen Schwartzman, Assistant to Carlyn McCaffrey<br>
<b>Tel</b> 212-547-5437 </span><span style="font-size:7.5pt;font-family:"Arial",sans-serif;color:white"> |
</span><span style="font-size:9.0pt;font-family:"Arial",sans-serif;color:black"> <b>Email</b> <a href="mailto:eschwartzman@mwe.com"><span style="color:black;text-decoration:none">eschwartzman@mwe.com</span></a></span><span style="font-size:12.0pt;font-family:"Times New Roman",serif;color:#1F497D"><o:p></o:p></span></p>
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<p class="MsoNormal"><span style="color:#1F497D"><o:p> </o:p></span></p>
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<p class="MsoNormal"><b>From:</b> estgift-bounces@actec.org <estgift-bounces@actec.org>
<b>On Behalf Of </b>Day, Eileen<br>
<b>Sent:</b> Saturday, July 20, 2019 11:41 AM<br>
<b>To:</b> 'EstGift@actec.org' <EstGift@actec.org><br>
<b>Subject:</b> [EstGift] QTIP Purchasing Commecial Annuity/Kite Case<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Estate/Gift Listserv: Any thoughts on a QTIP trust investing in a commercial annuity purchased on the life of surviving spouse/QTIP beneficiary?
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The Kite case (2013) seems to raise troubling consequence of a gift under 2519. Particularly, the statements that the intent of the QTIP rules are to defer the tax and then pay tax on the QTIP assets on the death of the surviving spouse.
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">In Kite, the Tax Court held that a 10-year deferred annuity constituted adequate and full consideration for a transfer of family partnership interests, even though the transferor died before receiving any payments. The court also held that
the liquidation of a qualified terminable interest property trust and subsequent sale of its assets constituted a step transaction which in effect was the disposition of the qualifying income interest for life, resulting in a deemed transfer of the entire
trust under section 2519. The court recognized that the mere conversion of the property into other property in which she had a qualifying income interest for life is not subject to Section 2519’s gift mechanism. Hard to square both of those conclusions.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Would conversion of QTIP assets into an annuity that has no remainder value be a gift of the remainder? Would it make a difference if the payments are guaranteed after death if the annuitant dies before receiving the entire stream of payments?
<o:p></o:p></p>
<p class="imprintuniqueid"><b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Eileen M.</span></b> <b><span style="font-size:11.0pt;font-family:"Arial",sans-serif;color:black">Day</span></b><br>
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