The Five Words That Used to Protect Your Trust
The old law had one line. Five words:
"This section shall not apply to any estate or trust."
That was Section 68(e) of the tax code. It meant that when Congress trimmed itemized deductions for high earners, trusts got a pass. Your trust sat behind a wall.
The One Big Beautiful Bill Act, the 2025 reconciliation package, knocked the wall down. The new law rebuilt the deduction limits from scratch. The old shield? Not amended. Not revised. Deleted.
What replaced it is worse.
The New Haircut
The new rule works like this. You take your trust's itemized deductions. The law shaves off 2/37ths of them. That fraction equals about 5.4 cents on every dollar.
Think of it as a tax on your tax breaks. Your trust pays a lawyer $10,000. The IRS says you can deduct it. Then the new rule walks in and eats $540 of that deduction. Just gone.
Trustee fees. Legal bills. Accounting costs. Charitable gifts. The haircut bites all of them.
Now here's where the pipe cracks.
The Mismatch
Congress built this rule for individuals. It kicks in when your income crosses into the 37% tax bracket. For a single person, that's $626,351 — and roughly $640,600 in 2026, the first year the new rule actually bites.
A non-grantor trust (one taxed as its own separate entity rather than passing income through to the grantor) hits that same 37% bracket at $15,650 in 2025, about $16,000 in 2026.
I mean. Read that again.
The rule was sized for someone pulling in six hundred forty grand. It lands on a trust making sixteen thousand. Every non-grantor trust in America with more income than a part-time job just lost part of its deductions.
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The Double Bill
The American College of Trust and Estate Counsel ran the numbers. A trust holds $1 million of income. It distributes every penny to the beneficiary. Nothing stays inside. The trust is a pipe. Cash flows in. Cash flows out.
Under the new rule, ACTEC calculated, the trust still owes about $53,000 in federal income tax. (ACTEC ran the math using 2025 bracket thresholds; the IRS's 2026 figures shift the result by a couple of percent, not the substance.)
On money it gave away.
Then the beneficiary gets the full million. Reports it as income. Pays tax on it. Same dollar. Two bills.
Sure.
The Footnote
Maybe this was a mistake. Maybe someone forgot to copy the old shield into the new law. Drafting errors happen.
So the government's own scorekeepers published their technical explanation. Think of it as the instruction manual for what the law means. Buried on pages 26 and 27 sits Footnote 102. It confirms — by way of Section 641(b) — that the new deduction limit applies to trusts and estates. The Senate Finance Committee's section-by-section summary said the same thing:
"This provision permanently repeals the Pease limitation and replaces it with a new overall limitation on the tax benefit of itemized deductions, applicable to individuals, estates, and trusts."
The "Pease limitation" was the old cap on deductions. Named after the congressman who wrote it. The new law killed it. Then replaced it with something worse for trusts.
Not a typo. Not an accident. They spelled it out.
Right.
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The Charity Loop
It gets stranger. Say a man dies. His only asset is a $3.7 million IRA payable to his estate. His will leaves everything to a university. Every cent goes to charity.
The estate claims a charitable deduction. The new haircut shrinks the deduction. Now there's a tax bill. That bill eats cash that was supposed to go to the university. Less cash means a smaller gift. A smaller gift means a smaller deduction. A smaller deduction means a bigger bill.
The math chases its own tail. It never settles. The formula just loops. You can't solve it. The Plumber finds this fascinating. The executor finds it terrifying.
The Blindside
This didn't come from some obscure blog. It landed at Heckerling 2026, the biggest trust and estate conference in the country. Trust lawyers who have drafted these things for decades were, in the words of one attendee, "literally floored." They assumed the old shield was still there. It wasn't.
Now ACTEC and the other major bar and accounting groups are all asking Treasury for a technical correction. Something. Anything.
Look. The government wrote the rules. We just read the fine print. And the fine print used to say five words that kept your trust safe.
Those five words are gone. The government says it meant to erase them. Your trust already plays by the new rules for the 2026 tax year.
The wall is down.
