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ESTATE AND GIFT TAX CONSIDERATIONSCertain transfers are excluded from the definition.• Taxable distribution is any distribution from a trust to a skip person, 159 thatis, a person two or more generations below the transferor of the interest.160 The amount of a taxable distribution is the value of the propertyreceived by the transferee, reduced by expenses of the transferee relatedto the tax. 161• Taxable termination is any termination of an interest in property held in trustwhen the interest is for the benefit of a skip person. 162 The taxable amountin the case of a taxable termination is the value of the property received onthe termination, reduced by expenses related to the property. 163• Direct skip is the transfer of an interest in an item of property to a skip person.164 The amount of the taxable gift is the value received.The valuation of the transfer is as of the time of the transfer. 165 The estatetax alternate valuation period may apply to direct skips or taxable terminationsat death. 166An exemption is allowed to every individual with respect to the value ofproperty transferred, with the base amount of the exemption of $1 million. 167 Aswith the gift tax annual exclusion, spouses are permitted to split the generationskippingtransfer tax exemption. This allows married couples to transfer up totwice the available exemption amount free of GST tax.Another exemption is permitted for transfers to certain grandchildren. 168 If aparent of a grandchild, who is a lineal descendant of the transferor, is dead, thegrandchild is treated as the child of the transferor. In this case, the generationskippinggap is closed up so that no GST tax applies to the transaction.All lifetime gifts entitled to the education or medical exclusion are exemptfrom the GST tax. 169Gifts directly to skip persons are exempt from the GST tax to the extent ofthe gift tax annual exclusion. Gifts to a trust for the benefit of a skip person areexempt from the GST tax to the extent of this annual exclusion only if: (1) theincome and corpus of the trust can be distributed only to that skip person forwhom the trust was created; and (2) if that skip person dies before terminationof the trust, the trust’s assets are includible in the gross estate of that skip person(typically accomplished by granting that skip person a general power ofappointment exercisable by that skip person’s will). 170159 IRC § 2612(b).160 IRC § 2613.161 IRC § 2621.162 IRC § 2612(a).163 IRC § 2621.164 IRC § 2612(c).165 IRC § 2624.166 IRC § 2624.167 IRC § 2631.168 IRC § 2612(c).169 IRC § 2642(c)(3).170 IRC § 2642(c)(2). 248