Are Estate Planning Fees Really Tax Deductible?

Estate planning is an essential tool at any stage in your adult life. It allows you to settle your affairs and create a plan for your assets after you die. While the peace of mind that estate planning provides is undoubtedly invaluable, settling one's affairs can get costly when you factor in legal fees and accounting.

Estate planning is an essential tool at any stage in your adult life. It allows you to settle your affairs and create a plan for your assets after you die. Estate planning provides peace of mind. It's invaluable, but it can be costly when you factor in legal fees and accounting.

Unfortunately, estate planning fees are no longer deductible from your taxable income. The IRS allowed itemized deductions on eligible estate planning fees until federal tax law, the Tax Cuts and Jobs Act of 2017 (TCJA), changed that rule.

These changes will be up for renewal in 2025. Estate planning fees, including legal fees, may be eligible for tax deductions in the future. Currently, such fees are non-deductible. In the meantime, the effects of this change will likely be minimal for most taxpayers.

Key Takeaways

  • Estate planning is a broad term. It refers to dispersing one's property and assets upon their death.
  • Settling an estate involves drafting legally enforceable documents such as wills, trusts, and advanced health care directives.
  • Previously, the IRS considered estate planning fees to be tax deductible.
  • The Tax Cuts and Jobs Act of 2017 made it harder to deduct estate planning fees, but had minimal effect on most taxpayers.

Estate Planning Deductions Before 2018

Before the tax reform changes took effect in 2018, some estate planning fees were eligible for itemized deductions per Internal Revenue Service rules. Less complicated measures, such as property or guardianship transfers, were not tax deductible. The IRS considered them personal expenses.

Under Schedule A rules for miscellaneous deductions, the IRS allowed taxpayers to deduct some estate planning fees. These miscellaneous itemized deductions include expenses incurred due to:

  • The production or collection of income, such as investment advice
  • The management, conservation, or maintenance of any real estate considered income-producing property
  • Tax advice, tax preparation, and accounting from a tax professional
  • Legal expenses for the drafting of wills, trusts, powers of attorney, and other documents

Suppose you hired an attorney to help establish an income trust for a beneficiary, typically a loved one or friend. Previously, you could have deducted the trust preparation and legal costs on your annual income tax return. However, now that the changes are in effect, estate planning costs are no longer deductible in this way.

Estate Planning Fees Are No Longer Deductible

The Tax Cuts and Jobs Act changes are in effect. Thus, taxpayers can no longer deduct their estate planning fees as miscellaneous deductions. The legislation eliminated these deductions beginning in 2018. The changes remain in effect until at least 2025.

A Minimal Effect on Most Taxpayers

Previously eligible estate planning fees no longer qualify as itemized deductions. But it may not affect most taxpayers.

Before the reform, taxpayers were only allowed to deduct expenses related to the production of taxable income. To qualify, all miscellaneous expenses had to exceed 2% of the taxpayer's adjusted gross income (AGI).

A taxpayer's AGI is used to determine taxable income. It's calculated by taking their total income and subtracting adjustments such as:

  • Pre-tax retirement contributions
  • Some medical expenses
  • Alimony
  • Other deductible expenses

These items are subtracted from a taxpayer's taxable estate. Even after a taxpayer's miscellaneous deductions cleared the 2% AGI bar, those deductions still had to exceed the taxpayer's standard deduction amount to qualify.

With so many hurdles to clear, claiming these deductions was never easy. Thus, most taxpayers aren't likely to miss them now that they're gone.

Will Estate Planning Fees Ever Be Tax Deductible Again?

It's possible. That might not be the answer you're looking for if you had planned on deducting fees relating to your estate plans this year. The Tax Cuts and Jobs Act took effect in 2018. Most of its provisions will remain in effect until the end of 2025. At that point, Congress must decide whether to renew the changes.

Whether estate planning deductions are allowed again will depend on the political headwinds of 2025 and the legislation's overall popularity among voters. In the meantime, taxpayers must find new ways to save on their estate planning. Talking to an attorney experienced in financial advising can help.

The Benefit of an Estate Planning Attorney

Estate planning is an essential but complicated process. Determining how to allocate your assets and property can lead to complex questions and difficult decisions. An estate attorney in your area can draft documents, provide vital legal advice, and guide you through the process of settling your affairs. The right attorney can also advise advantageous estate planning techniques, such as charitable gifting.

Related Resources

Estate Planning Deductions Pre-2017 Tax Reform

Before the tax reform changes went into effect in 2018, certain estate planning fees were eligible for itemized deductions per the Internal Revenue Service's (IRS's) rules. Even before the changes, not all estate planning fees were deductible. Less complicated measures, such as property or guardianship transfers, were not tax-deductible because the IRS considered them personal expenses.

Under Schedule A rules for miscellaneous deductions, the IRS allowed the deduction of certain estate planning fees. This included expenses that were incurred because of:

  • The production or collection of income
  • The management, conservation, or maintenance of any real estate property producing an income
  • Tax advice and accounting
  • Legal drafting of wills, trusts, powers of attorney, and other documents

Suppose you hired an attorney to help you establish an income trust for a beneficiary, typically a loved one or friend. In the past, you would have been able to deduct the trust preparation and legal costs on your annual tax return. However, now that the changes are in effect, estate planning costs are no longer deductible in this way.

Post-2017 Reform: Estate Planning Fees Are No Longer Deductible

Now that the Tax Cut and Jobs Act changes have taken effect, taxpayers can no longer deduct their estate planning fees as miscellaneous deductions. The legislation eliminated these deductions beginning in 2018, with the changes remaining in effect until at least 2025.

A Minimal Effect on Most Taxpayers?

Despite previously eligible estate planning fees no longer qualifying as itemized deductions, it might not be as bad as it seems.

Before the reform, taxpayers were only allowed to deduct expenses related to the production of taxable income. Additionally, for these deductions to qualify, all miscellaneous expenses had to exceed 2% of the taxpayer's adjusted gross income (AGI).

A taxpayer's AGI is used to determine taxable income. It's calculated by taking their total income and subtracting specific adjustments like retirement, medical expenses, alimony, and various other factors from their taxable estate.

But wait, there's more! Even after a taxpayer's miscellaneous deductions cleared the 2% AGI bar, those deductions would still have to exceed the taxpayer's standard deduction amount to qualify.

With so many hurdles to clear, claiming these deductions was never easy to begin with, and most taxpayers aren't likely to miss them now that they're gone.

Will Estate Planning Fees Ever Be Tax Deductible Again?

Possibly! That might not be the answer you're looking for if you had planned on deducting fees relating to your estate plans this year. The reality is that there is much left to be decided in this space. The Tax Cut and Jobs Act took effect in 2018. Most of its provisions will remain in effect until the end of 2025, at which point legislators must decide whether to renew the changes.

Whether estate planning deductions become feasible again will depend on the political headwinds of 2025 and the legislation's overall popularity among voters. In the meantime, taxpayers must find new ways to save on their estate planning. Talking to an attorney experienced in financial advising can help.

The Immense Benefit of an Estate Planning Attorney

Estate planning is an essential but complicated process. Determining how to allocate your assets and property can lead to complex questions and difficult decisions. An estate attorney in your area can draft documents, provide vital legal advice, and guide you through the lofty process of settling your affairs. The right attorney can also provide you with advantageous estate planning techniques, such as charitable gifting.

Related Resources

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