Taxable Termination [Internal Revenue] Law and Legal Definition

Pursuant to 26 CFR 26.2612-1 (b) [Title 26 Internal Revenue; Chapter I Internal Revenue Service, Department of the Treasury; Subchapter B Estate and Gift Taxes; Part 26 Generation-Skipping Transfer Tax Regulations under the Tax Reform Act of 1986], the term 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.”