A trust sends every dollar to charity. It keeps nothing. It gets a tax bill for $26,216.

I mean. Sure.

There was one line in the tax code. IRC Section 68(e). It shielded trusts and estates from something called the Pease limitation. The Pease limitation is a haircut. Once your income passes a threshold, the IRS shaves a percentage off your itemized deductions. You earned the deduction. You just don't get all of it. Section 68(e) said that haircut does not apply to trusts and estates. Simple. Trusts could deduct their charitable gifts in full. No cap. The whole dollar.

Congress deleted that line. The One Big Beautiful Bill Act, signed on July 4th, just erased it. No hearing. No debate. The Senate Finance Committee confirmed the change was on purpose. As Griffin Bridgers traced in his analysis, the new limitation now applies to "individuals, estates, and trusts."

Here's where the plumbing breaks.

An individual hits the 37% tax bracket at $626,350 of income. A trust hits it at $15,650. Not a typo. Trusts get squeezed into the top bracket forty times faster.

The new rule shaves roughly 5.4% off itemized deductions above the threshold. That's 2/37ths, if you want the fraction the IRS uses. On an individual return with $626,000 of income, that stings. On a trust with $500,000 of income, all but the first $15,650 sits in the top bracket. The haircut bites on nearly every dollar.

The New York State Bar Association Tax Section ran the numbers on an estate that gives 100% of its income to charity:

Right. The estate gave every penny away. The deduction got shaved. The phantom income got taxed. $26,216 on money the estate never kept.

Scale it up. Greenleaf Trust ran a $1 million trust. All income payable to charity. The charitable deduction shrinks by $50,000. Under old law, the trust owed zero. Under new law, it owes tax on fifty grand it gave away.

This hits charitable lead trusts. Testamentary trusts. Any non-grantor trust with a charitable purpose. If you built a trust to fund your church after you die, this is now your problem.

It gets worse. Look at the distribution deduction.

A trust has $100,000 of income. It sends $50,000 to a beneficiary. Under Sections 651 and 661, the trust deducts that $50,000. The beneficiary picks up $50,000 of taxable income. One box of money. One tax bill on each half. Total taxed: $100,000.

The NYSBA flagged what happens under the new rule:

One box. Two tax bills. $102,702 of taxable income on $100,000 of real money.

Phantom dollars. Taxed.

The NYSBA Tax Section filed a report. The American Institute of CPAs sent a formal letter to Treasury and the IRS asking for guidance. Both said the same thing: we don't know how to calculate this. Tell us how.

Treasury: silence. IRS: silence.

The 2026 tax year is here. Returns are due. Nobody has been told how to do the math. The AICPA told Treasury it needs answers. No answers came.

I mean. Yeah.

There is a workaround. You can overfund the charitable payout to absorb the haircut. On a $1 million trust, bump the distribution to $1,050,000. Spend more money to dodge the tax on money you gave away.

This is what happens when you write tax law at 2 AM on the Fourth of July. Congress deleted one sentence. Nobody checked what sat underneath it. Now a trust that gives every dollar to charity owes income tax on money it never kept.

The government wrote the rules. We're just reading the fine print.