Federal 2/37 Haircut Tax Change Clouds Trusts, Threatening Inheritances
Updated
Updated · Financial Planning · Jun 11
Federal 2/37 Haircut Tax Change Clouds Trusts, Threatening Inheritances
1 articles · Updated · Financial Planning · Jun 11
Summary
Financial advisors are being urged to revisit wealthy clients’ estate plans after the federal “2/37 haircut” created uncertainty over how trusts and estates calculate taxes and deductions.
The rule can trim itemized deductions by 2/37ths, and practitioners say that technical shift could reduce inheritances, trigger administrative disputes and leave some beneficiaries bearing taxes tied to others’ income.
IRAs left to trusts are a key pressure point: Robert Keebler said the change could make that structure less attractive because distributable net income rules may create “phantom income” and complex allocation fights.
Advisors were told to watch for Treasury guidance and start post-death planning within six to eight weeks, while considering alternatives such as leaving IRAs outright to beneficiaries.