Late evening view of US Capitol building in Washington DC, USARichard Sharrocks | Moment | Getty ImagesA version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.The “one big beautiful bill” came with many tax benefits for top earners, despite limiting how much they can deduct. However, lawyers for the wealthy said they have discovered a surprise buried in the footnotes of a tax law guide released last week by Congress’ policy staff that could amount to double taxation.The deduction cap is imposed on trusts and estates, the lawyers said, which was unexpected. Even if a trust gave all its income to its beneficiaries, it would have to pay taxes on a portion of that income, according to the lawyers’ interpretation of the document.While the consequences are steeper for trusts and estates of the ultra-wealthy, trusts with as little as $16,000 in income would also be subject to additional taxes, the lawyers said. “There is potentially an element of double taxation,” said Dan Griffith, director of wealth strategy at Huntington Bank. “This is something that is going to affect somebody with a $400,000 special-needs trust. It’s not just going to be something that $100 million dynasty trusts suffer with.”Griffith said he is especially concerned about trusts that are obligated to distribute all their income. Trusts will either have to sell assets to pay the taxes, sacrificing future investment returns, or reduce their distributions to beneficiaries, he said.This provision creates a “mathematical nightmare” for tax lawyers and financial advisors, according to Justin Miller, national director of wealth planning at Evercore Wealth Management. Miller gave the example of a wealthy couple wishing to leave their estate to charity.”If I have to pay income taxes, that means I’m giving less money to charity because I’m giving money to the IRS. That means I now have to adjust my deduction even more because less money is going to charity,” he said. “Did Congress really intend to create an algebraic formula?”Get Inside Wealth directly to your inboxThe Inside Wealth newsletter by Robert Frank is your weekly guide to high-net-worth investors and the …
