Are Estate Planning Fees Tax Deductible?

Estate planning accomplishes several goals, including present and future tax considerations, but the fees for these services are only deductible in very specific instances.

According to the IRS, estate planning fees are tax deductible under three, qualifying circumstances:

1. Estate planning is being performed specifically to address the production or collection of income related to the estate

2. For the management, conservation or maintenance of property held for the production of income

3. In connection with the determination, collection or refund of any tax

It is highly recommended that you consult with an estate planning attorney, a CPA, or a licensed financial consultant before claiming any estate planning fees as tax deductions. If you’ve deducted them erroneously, you could wind up with notable fees or penalties – not to mention a potential audit.

That being said, proper estate planning is almost always worth the fees, whether they are deductible or not, because well-planned estate protects you and your beneficiaries from paying unnecessary taxes. For most families, this means keeping thousands of dollars in the estate, rather than making them payable to Uncle Sam.

Examples of When Estate Planning Fees Are Deductible

Here are some of the scenarios where estate planning fees are legally tax deductible:

· Investment advice for account custodial fees while being held by the estate, trusts held by the estate, or trust tax preparation fees

· Advice about the construction of income trusts or other income generating instruments

· Seeking advice about recommended property transfer methods to avoid federal or state estate or inheritance tax

How to Deduct Qualifying Estate Planning Fees

For the fees associated with the above, it’s imperative that those services are clearly identified by your estate planning agent’s billing department or your CPA. Your invoices or paperwork from the billed appointment must clearly state that the billed expenses were specifically for estate planning services pertaiming to the current or future production of income or payment of current or future taxes.

These fees are considered “miscellaneous itemized deductions,” and they are subject to the 2% of your adjusted gross income (AGI) cap. So, for example, let’s say the total of your qualifying estate planning fees is $2500, and your AGI is $150,000. Two-percent (2% ) of your AGI is $3000. Therefore - $3000 – $2500 = $500. In this case, you would be able to deduct $500 of those qualifying state planning expenses.

Make sure to save any paid invoices, receipts, or documents identifying the expenses with your prepared tax documents for at least seven years.

Estate Planning Fees That Are Not Deductible on Your Taxes

The majority of estate planning has more to do with property transfers or guardianships, creating Durable Power(s) of Attorney, wills and living trusts designed to prevent assets and properties from winding up in probate. These services also simplify things considerably for those left behind. Failure to plan proactively means your descendants have to navigate a very costly and convoluted path to settle the estate on their own.

Most of the typical estate planning services are considered “personal services,” and the fees for those services cannot be deducted on your taxes. However, this should not serve as a reason to not pursue estate planning. The small amount estate planning fees qualifying for a deduction are nothing compared with the thousands of dollars, not to mention the time and energy required to settle a non-planned estate.

Taking the time, and making the investment in a well-planned estate provides invaluable peace of mind for you as well, as your executor and beneficiaries. And remember, never trust any professional with your sensitive legal, financial, or tax questions unless they are currently licensed and have reputable, industry experience.

Are you looking for an estate planning attorney you can trust to walk you through the steps necessary to get your wills, estates, and other legal affairs in order? Contact Tseng Law Firm and schedule a consultation.