Are Estate Planning Fees Tax-Deductible?

Not right now—although they used to be

Estate planning fees were tax-deductible, but are no longer. First, estate planning is the general term that covers arranging one's assets and property for distribution at death to beneficiaries. It includes the creation of legal documents such as trusts and wills, as well as that of directives such as durable power of attorney and living wills.

Estate planning isn’t only for the rich. Without a plan in place, settling affairs after one's death could have a long-lasting—and costly—impact on loved ones. Unfortunately, recent tax changes have made it harder, if not impossible, to continue to deduct many estate-planning fees.

Key Takeaways

  • Estate planning is an essential piece of passing on one's assets and wealth to loved ones and other beneficiaries.
  • Estate planning can be expensive—involving lawyers, accountants, and financial advisors.
  • Some estate planning fees were eligible as an itemized deduction under IRS rules, but the Tax Cuts and Jobs Act changed that.

IRS Rules Changed

Some estate planning fees were eligible as an itemized deduction under IRS rules for miscellaneous deductions on Schedule A, but the Tax Cuts and Jobs Act changed that—at least for now.

Until recently, the IRS allowed that legal fees for estate tax planning services could have been tax-deductible if they were incurred for the production or collection of income; the maintenance, conservation, or management of income-producing property, or tax advice or planning.

Many provisions of the Tax Cuts and Jobs Act will sunset at the end of 2025. A political change in Washington before then could also revive some deductions.

Those who planned to deduct fees for advice on the construction of such income-generating instruments as an income trust or guidance on the use of property transfer methods, for instance, will generally now be unable to deduct the cost of the fees on their tax return. Other examples of per-fee services that are no longer deductible include investment advice for trusts held by the estate and trust tax preparation.

Some fees were not deductible before the tax changes: estate planning relating to the simple transfer of property or guardianship as is common with most wills, for instance, or the use of estate planning instruments such as powers of attorney, living wills, or the writing of trusts to prevent estate assets from having to go to probate.

The Bottom Line

Many provisions of the Tax Cuts and Jobs Act will sunset at the end of 2025. Which provisions will be renewed (if any) is of course unclear. A political change in Washington before then could also revive some deductions for estate planning fees.

Those who depended on deducting estate planning fees will now have to find other ways to save when passing on wealth. For example. donor-advised funds have become tax-smart estate-planning tools post-reform. Now more than ever, a financial advisor or tax expert is the best first stop for those starting to plan their estates.

Article Sources
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  1. Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Pages 5-7. Accessed May 28, 2020.

  2. Internal Revenue Service. "Publication 529: Miscellaneous Deductions," Pages 3-4. Accessed May 28, 2020.

  3. Internal Revenue Service. "Publication 529: Miscellaneous Deductions," Page 8. Accessed May 28, 2020.

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