Contents

VALUATION OF PARTIAL INTERESTSAs to income and similar interests, a standard income factor may not beused to determine the present value of the interest in trust for a term of years orfor the life of one or more individuals unless the effect of the trust, will, or othergoverning instrument is to provide the income beneficiary with that degree ofbeneficial enjoyment of the property, during the term of the income interest, thatthe principles of the law of trusts accord to a person who is unqualifiedly designatedas the income beneficiary of a trust for a similar period of time. 77 Thisdegree of beneficial enjoyment is provided only if it was the transferor’s intent,as manifested by the provisions of the governing instrument and the surroundingcircumstances, that the trust provide an income interest for the income beneficiaryduring the specified period of time that is consistent with the value of thetrust corpus and with its preservation. In determining whether a trust arrangementevidences that intention, the treatment required or permitted with respectto individual items must be considered in relation to the entire system providedfor in the administration of the trust. Similarly, in determining the present valueof the right to use tangible property (whether or not in trust) for one or moremeasuring lives or for some other period of time, the standard interest rate componentmay not be used unless, during the period, the effect of the trust, will, orother governing instrument is to provide the beneficiary with that degree of use,possession, and enjoyment of the property during the term of the interest thatapplicable state law accords to a person who is unqualifiedly designated as a lifetenant or term holder for a similar period of time. 78Also, a standard income factor for an ordinary income interest may not beused to value an income interest or similar interest in property for a term ofyears or for one or more measuring lives under two circumstances. One is whenthe trust, will, or other governing instrument requires or permits the beneficiary’sincome or other enjoyment to be withheld, diverted, or accumulated foranother person’s benefit without the consent of the income beneficiary. Theother is when the governing instrument requires or permits trust corpus to bewithdrawn from the trust for another person’s benefit, during the income beneficiary’sterm of enjoyment. without the consent of and accountability to theincome beneficiary for the diversion. 79A standard annuity factor may not be used to determine the present valueof an annuity for a specified term of years or for the life of one or more individualsunless the effect of the trust, will, or other governing instrument is toensure that the annuity will be paid for the entire defined period. 80 In the caseof an annuity payable from a trust or other limited fund, the annuity is not consideredpayable for the entire defined period if, considering the applicableinterest rate at the valuation date of the transfer, the annuity is expected toexhaust the fund before the last possible annuity payment is made in full. Forthis purpose, it must be assumed that it is possible for each measuring life tosurvive until age 110. 8177 Reg. § 1.7520-3(b)(2)(ii)(A).78 Id.79 Reg. § 1.7520-3(b)(2)(ii)(B).80 Reg. § 1.7520-3(b)(2)(i).81 Id. 402