§2612 — Taxable termination; taxable distribution; direct skip
6 citing cases
Statute Text — 26 U.S.C. §2612
For purposes of this chapter, the term “taxable termination” means the termination (by death, lapse of time, release of power, or otherwise) of an interest in property held in a trust unless—
immediately after such termination, a non-skip person has an interest in such property, or
at no time after such termination may a distribution (including distributions on termination) be made from such trust to a skip person.
If, upon the termination of an interest in property held in trust by reason of the death of a lineal descendant of the transferor, a specified portion of the trust’s assets are distributed to 1 or more skip persons (or 1 or more trusts for the exclusive benefit of such persons), such termination shall constitute a taxable termination with respect to such portion of the trust property.
For purposes of this chapter, the term “taxable distribution” means any distribution from a trust to a skip person (other than a taxable termination or a direct skip).
For purposes of this chapter—
The term “direct skip” means a transfer subject to a tax imposed by chapter 11 or 12 of an interest in property to a skip person.
Solely for purposes of determining whether any transfer to a trust is a direct skip, the rules of section 2651(f)(2) shall not apply.
Treasury Regulations
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Treas. Reg. §26.2612-1Definitions
(a) Direct skip. A direct skip is a transfer to a skip person that is subject to Federal estate or gift tax. If property is transferred to a trust, the transfer is a direct skip only if the trust is a skip person. Only one direct skip occurs when a single transfer of property skips two or more generations. See paragraph (d) of this section for the definition of skip person. See § 26.2652-1(b) for the definition of trust. See § 26.2632-1(c)(4) for the time that a direct skip occurs if the transferred property is subject to an estate tax inclusion period.
(b) Taxable termination—(1) In general. Except as otherwise provided in this paragraph (b), a taxable termination is a termination (occurring for any reason) of an interest in trust unless—
(i) A transfer subject to Federal estate or gift tax occurs with respect to the property held in the trust at the time of the termination;
(ii) Immediately after the termination, a person who is not a skip person has an interest in the trust; or
(iii) At no time after the termination may a distribution, other than a distribution the probability of which occurring is so remote as to be negligible (including a distribution at the termination of the trust) be made from the trust to a skip person. For this purpose, the probability that a distribution will occur is so remote as to be negligible only if it can be ascertained by actuarial standards that there is less than a 5 percent probability that the distribution will occur.
(2) Partial termination. If a distribution of a portion of trust property is made to a skip person by reason of a termination occurring on the death of a lineal descendant of the transferor, the termination is a taxable termination with respect to the distributed property.
(3) Simultaneous terminations. A simultaneous termination of two or more interests creates only one taxable termination.
(c) Taxable distribution—(1) In general. A taxable distribution is a distribution of income or principal from a trust to a skip person unless the distribution is a taxable termination or a direct skip. If any portion of GST tax (including penalties and interest thereon) imposed on a distributee is paid from the distributing trust, the payment is an additional taxable distribution to the distributee. For purposes of chapter 13, the additional distribution is treated as having been made on the last day of the calendar year in which the original taxable distribution is made. If Federal estate or gift tax is imposed on any individual with respect to an interest in property held by a trust, the interest in property is treated as having been distributed to the individual to the extent that the value of the interest is subject to Federal estate or gift tax. See § 26.2652-1(a)(6) Example 5, regarding the treatment of the lapse of a power of appointment as a transfer to a trust.
(2) Look-through rule not to apply. Solely for purposes of determining whether any transfer from a trust to another trust is a taxable distribution, the rules of section 2651(e)(2) do not apply. If the transferring trust and the recipient trust have the same transferor, see § 26.2642-4(a) (1) and (2) for rules for recomputing the applicable fraction of the recipient trust.
(d) Skip person. A skip person is—
(1) An individual assigned to a generation more than one generation below that of the transferor (determined under the rules of section 2651); or
(2) A trust if—
(i) All interests in the trust are held by skip persons; or
(ii) No person holds an interest in the trust and no distributions, other than a distribution the probability of which occurring is so remote as to be negligible (including distributions at the termination of the trust), may be made after the transfer to a person other than a skip person. For this purpose, the probability that a distribution will occur is so remote as to be negligible only if it can be ascertained by actuarial standards that there is less than a 5 percent probability that the distribution will occur.
(e) Interest in trust—(1) In general. An interest in trust is an interest in property held in trust as defined in section 2652(c) and these regulations. An interest in trust exists if a person—
(i) Has a present right to receive trust principal or income;
(ii) Is a permissible current recipient of trust principal or income and is not described in section 2055(a); or
(iii) Is described in section 2055(a) and the trust is a charitable remainder annuity trust or unitrust (as defined in section 664(d)) or a pooled income fund (as defined in section 642(c)(5)).
(2) Exceptions—(i) Support obligations. In general, an individual has a present right to receive trust income or principal if trust income or principal may be used to satisfy the individual's support obligations. However, an individual does not have an interest in a trust merely because a support obligation of that individual may be satisfied by a distribution that is either within the discretion of a fiduciary or pursuant to provisions of local law substantially equivalent to the Uniform Gifts (Transfers) to Minors Act.
(ii) Certain interests disregarded. An interest which is used primarily to postpone or avoid the GST tax is disregarded for purposes of chapter 13. An interest is considered as used primarily to postpone or avoid the GST tax if a significant purpose for the creation of the interest is to postpone or avoid the tax.
(3) Disclaimers. An interest does not exist to the extent it is disclaimed pursuant to a disclaimer that constitutes a qualified disclaimer under section 2518.
(f) Examples. The following examples illustrate the provisions of this section.
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Treas. Reg. §26.2612-1(a)Direct skip.
Direct skip. A direct skip is a transfer to a skip person that is subject to Federal estate or gift tax. If property is transferred to a trust, the transfer is a direct skip only if the trust is a skip person. Only one direct skip occurs when a single transfer of property skips two or more generations. See paragraph (d) of this section for the definition of skip person. See § 26.2652-1(b) for the definition of trust. See § 26.2632-1(c)(4) for the time that a direct skip occurs if the transferred property is subject to an estate tax inclusion period.
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Treas. Reg. §26.2612-1(b)Taxable termination—(1) In general.
Taxable termination—(1) In general. Except as otherwise provided in this paragraph (b), a taxable termination is a termination (occurring for any reason) of an interest in trust unless—
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Treas. Reg. §26.2612-1(c)Taxable distribution—(1) In general.
Taxable distribution—(1) In general. A taxable distribution is a distribution of income or principal from a trust to a skip person unless the distribution is a taxable termination or a direct skip. If any portion of GST tax (including penalties and interest thereon) imposed on a distributee is paid from the distributing trust, the payment is an additional taxable distribution to the distributee. For purposes of chapter 13, the additional distribution is treated as having been made on the last day of the calendar year in which the original taxable distribution is made. If Federal estate or gift tax is imposed on any individual with respect to an interest in property held by a trust, the interest in property is treated as having been distributed to the individual to the extent that the value of the interest is subject to Federal estate or gift tax. See § 26.2652-1(a)(6) Example 5, regarding the treatment of the lapse of a power of appointment as a transfer to a trust.
(2) Look-through rule not to apply. Solely for purposes of determining whether any transfer from a trust to another trust is a taxable distribution, the rules of section 2651(e)(2) do not apply. If the transferring trust and the recipient trust have the same transferor, see § 26.2642-4(a) (1) and (2) for rules for recomputing the applicable fraction of the recipient trust.
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Treas. Reg. §26.2612-1(d)Skip person.
Skip person. A skip person is—
(1) An individual assigned to a generation more than one generation below that of the transferor (determined under the rules of section 2651); or
(2) A trust if—
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Treas. Reg. §26.2612-1(e)Interest in trust—(1) In general.
Interest in trust—(1) In general. An interest in trust is an interest in property held in trust as defined in section 2652(c) and these regulations. An interest in trust exists if a person—
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Treas. Reg. §26.2612-1(f)Examples.
Examples. The following examples illustrate the provisions of this section.
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Treas. Reg. §26.2612-1(i)§26.2612-1(i)
Has a present right to receive trust principal or income;
(ii) Is a permissible current recipient of trust principal or income and is not described in section 2055(a); or
(iii) Is described in section 2055(a) and the trust is a charitable remainder annuity trust or unitrust (as defined in section 664(d)) or a pooled income fund (as defined in section 642(c)(5)).
(2) Exceptions—(i) Support obligations. In general, an individual has a present right to receive trust income or principal if trust income or principal may be used to satisfy the individual's support obligations. However, an individual does not have an interest in a trust merely because a support obligation of that individual may be satisfied by a distribution that is either within the discretion of a fiduciary or pursuant to provisions of local law substantially equivalent to the Uniform Gifts (Transfers) to Minors Act.
(ii) Certain interests disregarded. An interest which is used primarily to postpone or avoid the GST tax is disregarded for purposes of chapter 13. An interest is considered as used primarily to postpone or avoid the GST tax if a significant purpose for the creation of the interest is to postpone or avoid the tax.
(3) Disclaimers. An interest does not exist to the extent it is disclaimed pursuant to a disclaimer that constitutes a qualified disclaimer under section 2518.
6 Citing Cases
at the time of death, or two-thirds (2/3) of the retirement allowance as it was at death, as the case may be, shall be continued, regardless of the age of the surviving widow, to the dependents of the member in the order of succession as defined in Section 2612, provided that if retirement was for injury received in or illness caused by the performance of duty and if death occurs prior to the date upon which the member would have qualified for service retirement, the allowance continued shall be
ncluding-- * * * * * * * (2) regulations (consistent with the principles of chapters 11 and 12) providing for 2 Sec. 2614(b) disappeared in the 1986 amendments presumably because Congress intended the limitation to be reflected in the definitions in sec. 2612. - 5 - the application of this chapter in the case of transferors who are nonresidents not citizens of the United States, * * * No regulation in respect of generation-skipping transfers by nonresident aliens had been issued at the time of d
of the date of decedent’s death, and all Rule references are to the Tax Court Rules of Practice and Procedure. Sec. 2614(b) disappeared in the 1986 amendments presumably because Congress intended the limitation to be reflected in the definitions in sec. 2612. For a critical analysis of the proposed regulations, see Schlesinger, “The Generation-Skipping Transfer Tax — A Reexamination on Its Ninth Anniversary”, 74 Taxes 49 (Jan, 1996); Heller & Sasaki, “Proposed Regulation Section 26.2663-2 and t