Example: Mrs. Reece creates an irrevocable life insurance trust for the benefit of her children and grandchildren. At Mrs. Reece�s death, the trustee is directed to hold the proceeds and to distribute as much income and principal to the various beneficiaries (a general sprinkle power) as the trustee determines in its sole discretion. If the trustee makes a distribution to any of Mrs. Reece�s grandchildren, a taxable distribution has occurred for GSTT purposes.

A taxable termination occurs when either

Example: Assume the facts from the example above. Suppose Mrs. Reece had instead provided that the insurance proceeds would be held in trust for her children with all income payable annually to her children in equal shares. At the death of Mrs. Reece�s last child, the trust will terminate, and the remainder will be distributed to her surviving grandchildren in equal shares. When Mrs. Reece�s last child dies and the trust terminates, a taxable termination occurs.