Link Server error

I am trying to create a linked server from SQL 2012 to 2008 by using a domain account. This domain account exists on both SQL boxes. I am trying to use "impersonate" option with "Not be made" if a login not defined in the list above. But I keep getting "Access to the remote server is denied because no login-mappping exists, error 7416" error. I have double checked this domain user exists on both SQL boxes with sys_admin right to it. I also checked the destination server have "trust this computer for delegation to any service" checked. I can use "Be made using this security context" option to make it work. What am I missing?

Thanks!