Are Estate Planning Fees Tax Deductible?

Estate planning fees may be tax deductible, but only if certain conditions have been met.

In order to be deductible, the IRS requires that estate planning fees must be paid: (1) for the production or collection of income; (2) for the management, conservation or maintenance of property held for the production of income; or (3) in connection with the determination, collection or refund of any tax.

So how might this apply to estate planning fees? If, for example, the estate plan involves advice on the construction of income generating instruments, such as an income trust, or provides guidance on the use of property transfer methods to avoid Federal or State Estate or Inheritance tax, these would meet the IRS restrictions for the ability to deduct such expenses. Other examples might include investment advice for trusts held by the estate, trust tax preparation fees and account custodial fees while held by the estate.

However, the billing invoice from the legal or accounting authority providing this advice would have to identify these expenses as being for the current or future production of income or payment of current or future tax. Estate planning relating to the simple transfer of property or guardianship as is common with most wills, or the use of estate planning instruments such as powers of attorney, living wills or the writing of trusts to prevent estate assets from being encumbered in probate, would be deemed personal expenses that would not be deductible.

Estate planning fee deductions must be taken as miscellaneous itemized deductions that will be subject to the 2% of adjusted gross income (AGI) floor. For example: if the total of all such allowable estate planning fees is $3,000 and the taxpayer's AGI is $100,000, then 2% of this AGI would be $2,000; therefore $3,000 - $2,000 = $1,000 would be deductible.