The Fair Trusts for Fiscal Responsibility Act creates a new annual federal tax on large trust assets, structured on a progressive scale ranging from 0% to 3% depending on asset value, with the tax applying to trusts valued between $50 million and $1 billion or more as of December 31 each year. The law establishes a "trust withholding credit account" system that allows beneficiaries to track tax credits across multiple trusts they benefit from, with credits increasing when taxes are paid and decreasing when distributions are made. The legislation includes detailed rules for valuing both tradable assets at fair market value and non-tradable assets using qualified appraisals or formulas based on cost basis, while restricting common tax avoidance strategies through discount limitations on family business interests. Trusts must file annual reports with the IRS detailing asset values and beneficiary information, with penalties for non-compliance, and the bill also treats payments by trust owners to cover trust taxes as taxable gifts unless reimbursed in the same year. The tax takes effect on January 1, 2027, with inflation adjustments to asset brackets beginning in 2028, and the new tax cannot be deducted from income taxes.
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