In determining whether a transfer is a direct skip for GSTT purposes, a grandchild of the transferor (or the transferor’s spouse) is treated as a child of the transferor if the grandchild’s parent who is a child of the transferor (or of the transferor’s spouse) is deceased at the time of the transfer. § 2612(c). The exception was expanded by the 1997 Act to apply to descendants of a parent of the transferor (or of his spouse or former spouse) if the transferor has no living descendants. Under the 1997 Act the exception is also to apply to taxable terminations and taxable distributions if the parent of the relevant beneficiary was dead at the earliest time the transfer was subject to the gift or estate tax.
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