Fiscal Responsibility Act of 2026: A Technical Reassessment of Large-Trust Planning

This article was originally posted to Steve Leimberg’s Estate Planning Email Newsletter – Archive Message #3310.

Thomas A. Tietz and Martin M. Shenkman

The Fair Trusts for Fiscal Responsibility Act of 2026 (the “Proposal”), if enacted, would alter the economics of estate and trust planning by targeting very large trusts with a recurring asset-based annual percentage charge. While it is highly unlikely that anything like this Proposal could be enacted under the current administration, it is yet another indication of what could be enacted in a different political environment. Practitioners, even at this premature stage, might consider:

·      Including a warning to clients with large value trusts and pursuing large dollar value planning that this is a possibility.

·      Consider this type of proposal when engaging clients in discussions about infusing flexibility into a trust plan. For example, if a non-grantor trust is being considered to save state income tax, consider also that it may be impractical to later swap non-income producing assets out of that trust for income producing assets to generate the cash flow that the Proposal could necessitate.

·      Consider integrating as much flexibility as appropriate and comfortable for the client into the planning such as an express decanting power, lifetime limited powers of appointments, broad trust protector provisions, an express ability to divide trusts (not only for GST inclusion ratio purposes), and perhaps, if the client is willing, a power held by someone in a non-fiduciary capacity to add beneficiaries. 

Query what the impact would be of an annual trust wealth tax under the Proposal when combined with the tax impact of the 2/37ths reduction on trust deductions for charity and distributable net income (DNI)?

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