Are legal expenses for estate planning deductible?

As a general rule, statutory fees for estate planning are not tax-deductible. Estate Planning Fees Were Tax-Deductible, But No Longer.

Are legal expenses for estate planning deductible?

As a general rule, statutory fees for estate planning are not tax-deductible. estate planning Fees Were Tax-Deductible, But No Longer. First, estate planning is the general term that covers the distribution of one's assets and property at the time of death to beneficiaries. It includes the creation of legal documents such as trusts and wills, as well as directives such as durable powers of attorney and living wills.

Every time tax season starts, many of us look for ways to reduce our tax liability. Some, but not all, attorney fees are eligible for the deduction. It depends on the type of legal service you have requested. For example, hiring an attorney for a child custody dispute or a personal injury case are ineligible expenses.

Legal expenses related to a business, such as collection of unpaid debts, are eligible. The simple answer is no, most estate planning services are not tax-deductible. However, there is a little more to it than that. Legal fees for estate planning can only be deducted if they are related to income-generating assets.

A political change in Washington before that date could also reactivate some deductions from estate planning fees. Now more than ever, a financial advisor or tax expert is the best first stop for those who are starting to plan their wealth. It is calculated by taking your total income and subtracting specific adjustments such as retirement, medical expenses, alimony and various other factors from your taxable estate. While everyone must file a tax return with the IRS each year, only between 0.1% and 0.2% of estates are valued high enough to be subject to inheritance tax when a person dies.

If your estate plan involves some complexity or is large enough to put you at risk of paying estate taxes, then you'll want to work with an attorney who specializes in estate planning. Those who relied on deducting estate planning fees will now have to find other ways to save by passing on their wealth. For example, if you have a living trust that generates income, the legal fees associated with maintaining and preserving your trust are tax-deductible. In point 2 above, you may be able to deduct a portion of the legal fees if they are related to tax planning.

Under Schedule A rules for miscellaneous deductions, the IRS allowed the deduction of certain estate planning charges. Another example would be wealth tax advice, whether it involves the formation of a general strategy to minimize potential taxes or the transfer of assets to avoid an inheritance tax. For example, if you seek legal advice related to transferring your residential housing to a newly created trust as a way to avoid probate, this would qualify as a personal expense. This means that if your estate plan includes advice on building income-generating instruments (such as a trust), the legal fees related to that service are tax-deductible.

The actual percentage of your bill that is ultimately tax-deductible will vary from case to case, but it's common for 60-75% of statutory estate planning fees to be deductible. There may be what may look like “gray areas” in legal advice and what constitutes a miscellaneous deduction on your Schedule 1 Form 1040. The legal fees you pay for tax return preparation for a trust are also eligible for the deduction. If your estate plan is simple and your personal situation does not deserve change, then you should re-evaluate your planning documents every 3 to 5 years.


Duane Meno
Duane Meno

Amateur zombie geek. Avid coffee aficionado. Proud web trailblazer. Unapologetic food guru. Incurable pop culture evangelist.

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