Page:United States Statutes at Large Volume 100 Part 3.djvu/911

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PUBLIC LAW 99-000—MMMM. DD, 1986

PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2719

"(2) a taxable termination, and "(3) a direct skip. "(b) CERTAIN TRANSFERS EXCLUDED.—The term 'generation-skipping transfer' does not include— "(1) any transfer (other than a direct skip) from a trust, to the extent such transfer is subject to a tax imposed by chapter 11 or 12 with respect to a person in the 1st generation below that of the grantor, and "(2) any transfer which, if made inter vivos by an individual, would not be treated as a taxable gift by reason of section 2503(e) (relating to exclusion of certain transfers for educational or medical expenses), and "(3) any transfer to the extent— "(A) the property transferred was subject to a prior tax imposed under this chapter, "(B) the transferee in the prior transfer was assigned to the same generation as (or a lower generation than) the generation assignment of the transferee in this transfer, and "(C) such transfers do not have the effect of avoiding tax under this chapter with respect to any transfer. "SEC. 2612. TAXABLE TERMINATION; TAXABLE DISTRIBUTION; DIRECT SKIP. "(a) TAXABLE TERMINATION.— "(1) GENERAL RULE.—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— "(A) immediately after such termination, a non-skip person has an interest in such property, or "(B) at no time after such termination may a distribution (including distributions on termination) be made from such trust to a skip person. "(2) CERTAIN PARTIAL TERMINATIONS TREATED AS TAXABLE.—If,

upon the termination of an interest in property held in a trust, a specified portion of the trust assets are distributed to skip persons who are lineal descendants of the holder of such interest (or to 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. "(b) TAXABLE DISTRIBUTION.—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). "(c) DIRECT SKIP.—For purposes of this chapter— "(1) IN GENERAL.—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. "(2) SPECIAL RULE FOR TRANSFERS TO GRANDCHILDREN.—For

purposes of determining whether any transfer is a direct skip, if— "(A) an individual is a grandchild of the transferor (or the transferor's spouse or former spouse), and "(B) as of the time of the transfer, the parent of such individual who is a lineal descendant of the transferor (or the transferor's spouse or former spouse) is dead.