Are Estate Planning Legal Fees Tax Deductible?

When a loved one passes away, the last things survivors want to think about are financial and legal issues. Yet few would argue that families are better off when they are unprepared for these matters.

Retaining a trust and estate lawyer ahead of death helps individuals and their families make the transition smoother, affording those left behind some peace of mind. One common question people pose to their attorneys: are estate planning fees tax deductible?

Common Types of Estate Planning Fees

What sort of fees do estate planning clients find most frequently? Since individual states dictate the estate and probate processes, designated fees and particulars may vary. Yet certain line items are most commonly present. These include professional consultation. with an estate planning attorney; preparation of the plan itself; and the review of all related documents. Input from a tax professional also represents a related payout.

Legal Fees

Fees normally charged for estate planning services may include the professional advice from a lawyer which, in some cases, may be offset by an initial free consultation. Once a plan is agreeable to all, the attorney then draws up the documents necessary to implement these decisions.

In addition, estate planning expenses also involve the filing of documents with courts and recording them with county governments. Such administrative costs are standard in the estate planning process.

Advisory Fees

State codes relating to legacy can be intricate, full of rules and exceptions. Guidance from an experienced lawyer is most helpful, and saves survivors any number of future headaches. So, sitting down with a legal professional can only be of benefit.

Such a meeting helps the attorney to understand the testator's wishes, the family's needs and other concerns while walking them through the sometimes complex mechanisms of trusts and estates.

Document Preparation Fees

The drafting of legal documents goes far beyond typing. For one thing, there may be several documents required beyond a will, especially if business succession planning is part of the package. Sometimes, powers of attorney come into play.

On other occasions, trust formation documents are central to the process. The number and length of documents reflect the size and scope of the estate. The law office must charge accordingly.

Tax Deductibility of Estate Planning Fees

Current tax laws differ from prior eras. The Tax Cuts and Jobs Act of 2017 changed the rules for deductible expenses. Prior to this legislation, the Internal Revenue Service (IRS) was generous in deducting such outlays from the federal tax calculation.

Since the Jobs Act, however, fewer fees are allowed. Once considered miscellaneous itemized deductions, most fees no longer qualify. Still, this prohibition is not categorical.

IRS Guidelines on Deductibility

In general, a la carte services associated with estate planning no longer count as miscellaneous deductions. At the same time, related fees for estate tax advice and return preparation; investment advisors for the estate; business succession planning; and estate management expenses remain deductible under IRS rules. Fees relative to the management or disposition of income producing property might also may also subtract from taxable income in some cases.

Deductible vs. Non-Deductible Fees

In the collection of income, the IRS allows taxpayers to list their deductions on schedule A of their return. Deductible fees are those that reduce the taxable income, thereby lowering the tax that is due. Non-deductible fees must be included in taxable income.

Legal and Advisory Fees

Unless otherwise specified, advice and consultation with estate planning lawyers are non-deductible fees.

Personal Expenses

In very few cases would individuals be able to deduct estate planning legal fees on their personal returns.

Examples of Deductible Estate Planning Fees

Trust Administration Fees

Fees that impact the stewardship of a trust may well qualify as estate planning tax deductibles. Administrative expenses include disbursing payments, filing trust documents and periodic appraisals, for example.

Investment Advisory Fees

If investment advice is deemed managerial or administrative by the IRS, it can count as a deduction.

Examples of Non-Deductible Estate Planning Fees

Will Preparation

The federal government almost always considers the drafting of a will as a personal expense, rarely eligible for deduction.

Personal Legal Advice

Again, legal counsel of a personal nature does not fit the new law's exemption rules.

How to Claim Estate Planning Fees on Your Taxes

Itemizing Deductions

Estate-related costs can be itemized on a business return as long as they focus on income generation. On a 1041, administrative expenses can show as deductible items.

Required Documentation

Per the IRS, invoices and other proofs are necessary when deducting management fees for the estate and income-producing assets.

Recent Changes in Tax Laws

Impact of the 2017 Tax Cuts and Jobs Act

As noted above, the Jobs Act, though affording broad tax benefits in some areas, closed off many opportunities for a more favorable adjusted gross income through tax deductions. The law is set to expire at the end of 2025 so the current reality could change in coming years.