The One Big Beautiful Bill Act, a new U.S. tax package that includes a range of benefits for high earners, has sparked concern among financial advisors and tax attorneys. Experts say they have identified a provision in congressional explanatory materials that could unintentionally lead to double taxation for trusts and estates.
According to their interpretation, limits on itemized deductions now appear to extend beyond high-income individuals to include trusts and estates. As a result, a portion of income may be taxed at the trust level even if it is fully distributed to beneficiaries, who are also required to pay tax on that same income.
Lawyers warn that the issue is not limited to ultra-wealthy family structures. The additional tax burden could also affect smaller trusts, including special needs trusts. In some cases, trustees may be forced to reduce payouts to beneficiaries or liquidate assets in order to cover the tax liability.
Industry professionals are calling for clarification from the U.S. Treasury Department to resolve the uncertainty. Until formal guidance is issued, advisors say they are preparing for conservative interpretations of the rules and warning clients about potential financial risks.
