PUBLIC LAW 100-647—NOV. 10, 1988	102 STAT. 3635
eludes any member of the original transferor's family
to whom the property is subsequently transferred.
"(iii) paragraph (i) inclusion.—The term 'para-
graph (1) inclusion* means the amount which would
have been included in the gross estate of the original
transferor under subsection (a) by reason of paragraph
(1) (determined without regard to sections 2032 and
2032A) if the original transferor died immediately
before the transfer referred to in subparagraph (A).
The amount determined under the preceding sentence
shall be reduced by the amount (if any) of the taxable
gift resulting from the transfer referred to in para-
graph (1)(B).
"(iv) transfers to include terminations, etc.—
Terminations, lapses, and other changes in any interest
in property of the original transferor or original trans-
feree shall be treated as transfers.
"(E) continuing interest in transferred property may
not be retained.—A transfer (to which subparagraph (A)
would otherwise apply) shall not be taken into account
under subparagraph (A) if the original transferor or the
original transferee (as the case may be) retains a direct or
indirect continuing interest in the property transferred in
such transfer."
(2) cross reference.—Subsection (d) of section 2501 of the
1986 Code is amended by adding at the end thereof the follow-
ing:
'(3) For treatment of certain transfers related to estate tax
valuation freezes as gifts to which this chapter applies, see
section 2036(c)(4)."
(b) treatment of certain grantor retained income trusts.—
Subsection (c) of section 2036 of the 1986 Code is amended by adding
at the end thereof the following new paragraph:
"(6) treatment of certain grantor retained interest
trusts.—
"(A) in general.—For purposes of this subsection, any
retention of a qualified trust income interest shall be dis-
regarded and the property with respect to which such
interest exists shall be treated as held by the transferor
while such income interest continues.
"(B) qualified trust income interest.—For purposes of
subparagraph (A), the term 'qualified trust income interest'
means any right to receive amounts determined solely by
reference to the income from property held in trust if—
"(i) such right is for a period not exceeding 10 years,
"(ii) the person holding such right transferred the
property to the trust, and
"(iii) such person is not a trustee of such trust."
(b) exceptions.—Subsection (c) of section 2036 of the 1986 Code is
amended by adding at the end thereof the following new para-
graphs:
"(7) exceptions.—
"(A) in general.—Paragraph (1) shall not apply to a
transaction solely by reason of 1 or more of the following:
"(i) The receipt (or retention) of qualified debt.
"(ii) Except as provided in regulations, the existence
of an agreement for the sale or lease of goods or other