A taxable distribution is any distribution from a trust to a skip person that is not a direct skip or a taxable termination. The taxable amount in the case of a taxable distribution is the value of the property received by the transferee (i.e., the skip person), less any expense incurred by the transferee in connection with the determination of the GSTT.
For example, assume the trust provides that the trustee is authorized to pay income and/or principal to the transferor's children and grandchildren. Before the final termination of the trust, a distribution is made to a grandchild, who is a skip person. The distribution is a taxable distribution.
The tax is imposed at the time of the distribution, and is payable by the transferee. If the tax is paid from the trust, the amount of the tax is treated as an additional taxable distribution, and there will be a generation-skipping transfer tax on that amount as well.
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