Estate planning fees were tax-deductible, but are no longer tax-deductible. Some attorneys issue separate invoices for deductible and non-deductible legal fees. Generally, between 40 and 60% of legal estate planning fees can be deductible, although the percentage varies depending on the individual case. We recommend that you discuss this with your lawyer early in the process.
Miscellaneous Deductions Prior to the enactment of the TCJA, individuals, trusts and estates were allowed to deduct certain expenses described in the Internal Revenue Code (IRC) § 67, to the extent that the total of these expenses exceeded 2% of the adjusted gross income of the individual, trust or estate. Under these rules, the administrative expenses of an estate or trust that would normally be subject to this 2% limitation were fully deductible provided that they were paid or had been incurred in connection with the administration of the estate or trust, and would not have been incurred if the property were not in the trust or patrimony. Over the years, there has been significant litigation over what expenses are truly considered exclusive to a trust or estate and are therefore fully deductible. It is generally accepted that the costs of administering an inheritance (for example,.
Inheritance costs, appraisal fees and storage fees) are considered one-time expenses and are therefore deductible. In addition, trusts and estates have recognized that trust fees, accounting fees, legal fees, and tax return preparation fees are fully deductible. However, investment management fees and other expenses related to investment income are generally not considered exclusive to a trust or estate and are therefore subject to the 2% limitation. Conclusion: While the proposed regulations provide much needed clarity on the deductions that are still allowed for trusts and estates, there are still some unanswered questions that the final regulations may address when they are finally published.
Contact your HBK advisor to discuss the effect that these proposed regulations may have on your tax situation. Amy Dalen, JD Amy is director and president of the HBK CPAs Tax Advisory Group & Consultants. The Tax Advisory Group is a group of highly specialized professionals who provide tax training to our team members, oversee compliance with tax policies to mitigate risk for the firm, and provide consulting and tax planning services for our clients. Amy specializes in inheritance, gift, trust, individual and non-profit taxes.
Gaymon, CPA Sarah Nicole Gaymon, CPA, is senior manager of HBK CPA's Tax Advisory Group & Consultants, located in the West Palm Beach office, specializing in trusts and probate. Sarah's experience includes tax compliance and tax consulting for people with high net worth, family groups, trusts, inheritance and gift tax issues. Contact a qualified estate planning lawyer to help ensure that your loved ones are cared for and their wishes are met. 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.
Whether estate planning deductions are feasible again will depend on the political obstacles of 2025 and the general popularity of the legislation among voters. If your estate is simple and you don't risk paying wealth taxes, then this distinction is less important. Estate planning fees that are not tax-deductible would be legal advice regarding the creation of a trust or issues related to the transfer of property. On the other hand, wealth income tax applies to interest, dividends, or other types of income earned by inheritance after the death of the decedent.
According to IRS Publication 529, the legal costs of some specialized estate planning services may fall under the category of miscellaneous deductions for tax return purposes. Legal estate planning expenses may be deducted under Section 162 of the IRC if they are related to a business or business, or such expenses may be deducted under Section 212 of the IRC if they are related to the determination of any tax. Other estate planning instruments that do not qualify for deductions would include health care directives, powers of attorney, and guardianship designations. These changes will be renewed again in 2025, so estate planning charges may again be eligible for tax deductions in the future.
Many estate planning attorneys already bill separately for tax-deductible services, but it's still a good idea to address the issue with your lawyer early in the process. Depending on your situation, your lawyer may recommend that you establish a trust as part of your estate plan. Many estate planning attorneys have an auxiliary or small department that helps you transfer assets to the trust, but not all attorneys have one. In general, the proposed regulations confirm that a trust or estate can still deduct expenses that would not have been incurred if the property to which the expenses relate were not in the hands of a trust or estate.
However, now that the changes are in effect, estate planning costs are no longer deductible this way. Under Schedule A rules for miscellaneous deductions, the IRS allowed the deduction of certain estate planning fees. . .
