IRC Section 2603 addresses liability for generation skipping transfer tax and the calculation of the taxable amount for GST purposes. It sets out who is responsible for paying GST tax in different scenarios, such as direct skips, taxable terminations, and taxable distributions. For a direct skip, the transferor or their estate is generally liable for the tax; for taxable distributions, the transferee is usually liable; and for taxable terminations, the trust itself may be treated as the taxpayer. Section 2603 works in tandem with other GST provisions to define how the taxable amount is computed, including adjustments for consideration received and coordination with estate and gift tax values. In life insurance and dynasty trust planning, understanding who will ultimately be responsible for paying any GST liability is crucial when drafting trust language, designing distribution policies, and communicating net benefit expectations to beneficiaries.

In real world usage, advisors see IRC Section 2603 at work when they explain how GST taxes will actually be paid if a plan triggers taxable events. If a large life insurance policy pays into a dynasty trust, subsequent distributions to grandchildren may be taxable distributions where the grandchild is liable for GST tax, typically funded from the distribution itself. In a direct skip scenario, such as naming a grandchild as the outright beneficiary of a sizable policy, the transferor's estate may owe the GST tax in addition to estate tax. Advisors collaborate with estate planning attorneys to build trust provisions specifying whether GST and other taxes are to be paid from principal, income, or separate tax reimbursement clauses, so tax obligations do not create inequities among beneficiaries. By understanding Section 2603, producers and planners can model after tax outcomes more accurately and set realistic expectations about how much insurance funded wealth will ultimately reach younger generations net of GST.