Are Estate Planning Fees Tax Deductible?

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Are Estate Planning Fees Tax Deductible?

Estate planning payments were once tax deductible, however they are no longer. To begin, estate planning is a broad word that refers to the process of structuring one’s assets and property for distribution to beneficiaries upon death. It entails the preparation of legal papers like trusts and wills, as well as directives like durable power of attorney and living wills.

Estate planning isn’t only for the wealthy. Without a strategy, settling affairs following a loved one’s death may have a long-lasting (and expensive) effect on loved ones. Unfortunately, recent tax changes have made deducting many estate-planning costs more difficult, if not impossible.

Key Takeaways

  • Estate planning is an important part of transferring assets and fortune to loved ones and other recipients.
  • Estate preparation may be costly, requiring the services of attorneys, accountants, and financial experts.
  • Under IRS guidelines, certain estate planning costs were allowable as an itemized deduction, but the Tax Cuts and Jobs Act altered that.

IRS Rules Changed

Some estate planning costs were previously deductible as miscellaneous deductions on Schedule A under IRS guidelines, but the Tax Cuts and Jobs Act altered that—at least for the time being.

Until recently, the IRS permitted tax-deductible legal costs for estate tax planning services provided they were expended for the generation or collection of revenue; the preservation, conservation, or management of income-producing property; or tax advice or planning.

Many Tax Cuts and Jobs Act provisions will expire at the end of 2025. Before then, a political shift in Washington might resurrect several deductions.

Those who expected to deduct fees for advise on the creation of income-generating instruments such as an income trust or counseling on the use of property transfer techniques, for example, would typically no longer be allowed to do so on their tax return. Investment advice for trusts owned by the estate and trust tax preparation are two further instances of per-fee services that are no longer deductible.

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Some fees were not deductible prior to the tax changes, such as estate planning involving the simple transfer of property or guardianship, as is common with most wills, or the use of estate planning instruments such as powers of attorney, living wills, or the creation of trusts to avoid the need for estate assets to go through probate.

The Bottom Line

Many Tax Cuts and Jobs Act provisions will expire at the end of 2025. Of course, it is unknown which provisions will be renewed (if any). A political shift in Washington before then might possibly bring back certain estate planning expense deductions.

Those who relied on the ability to deduct estate planning expenses will now have to find new methods to save while passing on wealth. As an example, Following the reform, donor-advised funds have evolved into tax-savvy estate-planning instruments. A financial counselor or tax specialist is the greatest first stop for people beginning to arrange their estates now more than ever.

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