Fair Trusts for Fiscal Responsibility Act

Bill Number

S. 4490

Origin Chamber

Senate

Congress

119th Congress, Session 2

Policy Area

Taxation

Status

Introduced

Latest Action

2026-05-12: Read twice and referred to the Committee on Finance.

Last Updated

2026-05-28T20:35:59Z

AI-Generated Summary

Fair Trusts for Fiscal Responsibility Act (S. 4490)

Purpose

This legislation amends the Internal Revenue Code of 1986 to impose an annual tax on the net value of assets held by certain trusts. It aims to enhance fiscal responsibility by generating revenue from large trust holdings while coordinating with existing estate and generation-skipping transfer tax systems through credits and adjustments.

Key Provisions

• New Tax Structure: Adds Chapter 16 to Subtitle B of the Internal Revenue Code, titled "Tax on Trust Assets," with three subchapters:
• Subchapter A imposes the tax on the net value of all assets in an "applicable trust" as of the last day of each calendar year, using progressive rates: 0% on amounts up to the first threshold, 1% on the next portion, 1.5% on the following, 2% on the next, and 3% on amounts above the highest threshold.
• Bracket thresholds begin at $50 million (1%), $100 million (1.5%), $250 million (2%), and $1 billion (3%), with inflation adjustments starting after 2027 and rounding rules.
• Unused bracket amounts can be allocated among beneficiaries based on their beneficial interests, with options for elections to adjust allocations; special rules apply for trusts where all beneficiaries are corporations, partnerships, or other trusts.
• Trust Withholding Credit Account: Subchapter B requires trusts and certain beneficiaries to maintain accounts that track taxes paid, with additions for taxes remitted and subtractions for distributions or terminations; qualified distributions (to non-exempt beneficiaries) trigger ratable share adjustments.
• Valuation and Definitions: Subchapter C outlines rules for determining the "net value of assets," including fair market value for tradable assets, qualified appraisals or alternative methods for others, limits on family control discounts, and look-through rules for nonbusiness assets in entities; qualified debts are defined to exclude those from contributors, beneficiaries, or related parties.
• Applicable Trusts and Beneficiaries: Defines applicable trusts as those involving U.S. persons (grantors, beneficiaries, or the trust itself), with exceptions for charitable, retirement, short-term commercial, and certain revocable trusts; beneficiaries include individuals with non-contingent interests or specific 5% owners of corporate or partnership beneficiaries, while exempt beneficiaries are charitable organizations.
• Reporting Requirements: Mandates annual statements from trusts on net assets and beneficiaries, plus beneficiary filings on bracket allocations (with exceptions for small interests under $250,000); penalties apply for non-compliance.
• Coordination with Other Taxes: Grosses up taxable amounts for generation-skipping transfers to include credit account balances and provides credits against estate and generation-skipping taxes for previously paid trust asset taxes; refunds are available for excess credits.
• Grantor Trust Rules: Treats payments of income or asset taxes on certain grantor trusts by deemed owners as taxable gifts, with exceptions for reimbursements and specific timing rules; denies related deductions under gift tax provisions.
• Effective Dates: Applies to calendar years beginning after December 31, 2026, for the trust tax and related changes; grantor trust rules apply to amounts paid after enactment.

Significant Changes to Existing Law

• Introduces a novel annual tax on trust assets, expanding beyond traditional income, estate, and gift taxes to target accumulated wealth in trusts.
• Establishes credit accounts and integration mechanisms with chapters 11 (estate tax) and 13 (generation-skipping tax), including gross-up rules and refund provisions not previously in place.
• Modifies valuation standards to restrict discounts for family-controlled entities and nonbusiness assets, and requires new information reporting under section 6039M.
• Treats certain tax payments on grantor trusts as gifts, altering prior treatment under section 2503.

Potential Impacts

• Government Agencies: Increases administrative responsibilities for the Internal Revenue Service in processing new reports, verifying valuations, and managing credit accounts; may require updates to regulations within 12 months of enactment.
• Citizens: Raises compliance costs for individuals and families with large trusts, potentially affecting asset management strategies; provides credits that could reduce future tax liabilities in estate or transfer scenarios.
• International Relations: Applies to trusts with U.S. grantors or beneficiaries, which could influence cross-border trust structures involving foreign persons or entities.

Main Stakeholders Affected

• High-net-worth individuals serving as grantors or beneficiaries of applicable trusts.
• Trustees, trust administrators, and professional advisors involved in estate planning.
• The Internal Revenue Service and Department of the Treasury for enforcement and rule-making.
• Charitable organizations as exempt beneficiaries.
• Corporations and partnerships holding interests in trusts, along with their 5% owners.

Notable Legal, Constitutional, or Political Implications

• Integrates the new tax with existing transfer tax regimes to avoid double taxation through credits, potentially raising questions about the scope of congressional taxing authority.
• Valuation rules limiting discounts may involve interpretations of property rights under the Internal Revenue Code.
• The legislation emphasizes revenue generation from trusts while maintaining neutrality in its application to U.S. persons and related entities.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Murray, Patty [D-WA]

Cosponsors (4)

Sen. Wyden, Ron [D-OR], Sen. Van Hollen, Chris [D-MD], Sen. Booker, Cory A. [D-NJ], Sen. Alsobrooks, Angela D. [D-MD]

Recent Actions

• 2026-05-12: Read twice and referred to the Committee on Finance.
• 2026-05-12: Introduced in Senate

Bill Versions

• Fair Trusts for Fiscal Responsibility Act — issued 2026-05-12 — PDF (41 pages)