Estate planning fees were tax-deductible, but are no longer tax-deductible. The simple answer is no, most estate planning services are not tax-deductible. However, there is more to it than that. Legal fees for estate planning can only be deducted if they relate to income-generating assets.
Under Schedule A rules for miscellaneous deductions, the IRS allowed the deduction of certain estate planning fees. Now that the changes to the Tax Cuts and Jobs Act have taken effect, taxpayers can no longer deduct their estate planning fees as miscellaneous deductions. Depending on your situation, your lawyer may recommend that you establish a trust as part of your estate plan. While the peace of mind that estate planning provides is undoubtedly invaluable, resolving your own issues can be costly when you consider legal fees and accounting.
In conclusion, the determination of whether legal estate planning fees are tax-deductible or not and to what extent must be determined on a case-by-case basis. Other estate planning instruments that do not qualify for deductions would include health care directives, powers of attorney and guardianship designations. I) As mentioned above, the standard deduction doubled, making itemizing your own taxes less attractive, something you would have to do to deduct your estate planning fees. For example, your lawyer could state that 25% of your fees were for your will (not deductible) and the remaining 75% for income and estate tax planning.
However, now that the changes are in effect, estate planning costs are no longer deductible in this way. Generally, between 40 and 60% of legal estate planning fees can be deductible, although the percentage varies in each individual case. The actual percentage of your bill that is ultimately tax-deductible will vary from case to case, but it's common for 60 to 75% of legal estate planning fees to be deductible. Many estate planning attorneys have an auxiliary or small department that helps you transfer assets to the trust, but not all attorneys have one.
These changes will be renewed again in 2025, so estate planning charges may again be eligible for tax deductions in the future. Contact a qualified estate planning lawyer to help ensure that your loved ones are cared for and that your wishes are met.
