A client recently forwarded an article with a simple question: “Does this affect our trust?”

It’s a thoughtful question—and one many families across Central Florida are now asking.

Recent changes in federal tax law introduced a provision that, while not widely discussed, could affect how certain trusts are taxed. For families who have created trusts to care for a spouse, support a child, or preserve assets for the next generation, it’s worth taking a closer look.

The Headline—and What Wasn’t

Much of the attention around the new law has focused on the increase in the federal estate tax exemption. Beginning in 2026, that exemption rises to $15 million per person, or $30 million for married couples.

For some families, that’s welcome news.

However, another provision—less visible but potentially more far-reaching—was included in the same legislation. This rule imposes a limitation on certain tax deductions and may now apply to trusts and estates.

Why This Matters for Everyday Family Trusts

Unlike individuals, trusts reach the highest federal income tax bracket at relatively low income levels. In 2026, a trust may reach the top bracket at approximately $16,000 in taxable income.

That means even a modest trust—one created to provide steady support for a spouse or child—could be affected by this new limitation.

Traditionally, when a trust distributes income to a beneficiary, that income is taxed once at the beneficiary’s level. The trust itself receives a deduction for the distribution.

Under the new rule, that deduction may be limited.

In certain situations, this could result in part of the trust’s income being taxed at the trust level, even though the beneficiary is also paying tax on what they receive.

A Closer Look at Who May Be Affected

This development is not limited to large or complex estates. In fact, it may impact families who created trusts for very practical, personal reasons.

• Special needs trusts. If you have a child with a disability and a trust designed to protect their government benefits, that trust may now face this limitation. The trust may owe taxes on the income it distributes to your child, while your child is also paying taxes on that same income.
• Trusts for a surviving spouse. Many families set up trusts to provide income to a surviving spouse while preserving the principal for children. If that trust is obligated to distribute its income, it now faces a real problem: it may owe tax on income the spouse already paid tax on, and paying that bill means either selling assets or going back to court to reduce her distributions.
• Life insurance trusts. Irrevocable trusts holding life insurance policies are a common planning tool. If that trust generates taxable income, the new limitation potentially applies.

The common thread is any trust that distributes income to someone who depends on it. The trusts most immediately at risk are those obligated to distribute their income, such as QTIP trusts for surviving spouses, special needs trusts, and irrevocable life insurance trusts that generate taxable income. Trusts with more distribution flexibility may have more options depending on how Treasury guidance ultimately lands.

And the provision applies to income generated in 2026, meaning for some families, this is already in motion.

What We Know—and What We’re Waiting On

This provision was identified in technical guidance explaining the law, and further clarification from the Treasury Department is expected.

That guidance may narrow the impact, confirm it, or provide planning options.

For now, there is some uncertainty. But one thing is clear: the rule is expected to apply to income generated in 2026.

Waiting for complete certainty may feel comfortable, but it can also mean missing opportunities to adjust planning strategies before year-end.

What You Can Do Right Now

If you have trust, this is the moment to make sure it is still working the way you intended.

That starts with understanding what kind of trust it is, what income it generates, and who depends on its distributions. Some trusts can be restructured. Distribution strategies can sometimes be adjusted. In some cases, a different approach serves the original goal better under the new rules than the current structure does.

What I can tell you is that the families who built their trusts did so for real reasons: to protect a child with a disability, to provide for a surviving spouse, to make sure the right people have what they need when they need it. The new law does not change those goals. It raises the question of whether the structure you chose to achieve them still gets you there.

When I work with families on this, we look at the full picture: the trust itself, what it holds, who it benefits, and how the new rules interact with its setup. That is exactly the kind of conversation a Life & Legacy Planning® Session is built for.

This is not a one-size-fits-all review. Your trust was built for your family’s specific reasons, and that is how we look at it.

The relationship doesn’t end when the documents are signed. When something happens, your family knows to call me.

For families in Brevard County and throughout Central Florida, staying informed and proactive can help ensure that your estate plan continues to serve the people you care about most—clearly, efficiently, and as intended.

Book your discovery call today!

This article is a service of Sibley Law & Associates, PLLC. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.