Trump's 'big beautiful bill' has 'double taxation' trap, lawyers say

Key Points:

• A recent tax law guide's footnote reveals that trusts and estates may face unexpected double taxation due to a deduction cap, even if they distribute all income to beneficiaries, affecting both ultra-wealthy and smaller trusts.
• This deduction limitation, part of the One Big Beautiful Bill Act (OBBBA), reduces the tax benefit for high earners and now applies to trusts and estates, potentially forcing trusts to pay taxes on income already taxed at the beneficiary level.
• Financial advisors warn this could force trusts to sell assets or reduce distributions, harming beneficiaries and complicating estate planning, especially for trusts obligated to distribute all income.
• The issue stems from the Joint Committee on Taxation's interpretation in the Bluebook, and while it is not law itself, it has raised significant concerns among wealth planners and lawyers.
• Resolution may come from Congressional amendments or Treasury guidance, expected by year-end, but uncertainty remains about which deductions will be limited, particularly concerning charitable contributions by trusts and estates.