Are Estate Planning Fees Tax-Deductible?
Another common question we hear from our clients is whether their estate planning fees are tax deductible - that is, whether they can deduct the fees they pay to their estate planning attorney or the cost to generate income in the estate from their taxes thus lowering their tax burden?
Firstly, we do need to preface the information here with one caveat - with this question, we are in the world of taxes, meaning we are in the world of politics. As such, the information here can always change. In fact, there has been a change directly on this point very recently. We will of course, update you with any changes that may happen down the line.
This brings us to the question at hand: Are Estate Planning fees tax deductible? To put it simply, no, estate planning fees are not tax deductible. However, this non-tax-deductible status is actually a new rule. Estate planning fees used to be tax deductible but are no longer.
What changed was politics. On December 22, 2017, former President Trump signed the massive Tax Cuts and Jobs Act ("TCJA") which generally worked to cut individual, corporate and estate tax rates starting the following year. Of course, you can never simply have a blanket tax cut across the board and not touch anything else.
For example, the standard tax deduction for individuals doubled under the TCJA, but itemization became much less advantageous as a counter. A clear illustration is the ability to deduct one's state and local property taxes was severely limited to a cap of $10,000.
With regards to estate planning, we lost the ability to deduct the expenses for estate planning completely, but there are two other changes that make up for this:
(i) As discussed above, the standard deduction was doubled, thus making itemizing one's taxes less appealing - something you would need to do to deduct your estate planning fees.
(ii) The estate tax levels (I.e., the size an estate must be before the estate, or death, tax is levied) will also more than double overtime. From 2018 through 2025, the estate tax level for individuals will go from approximately $5.5m to $11m and couples will go from approximately $11m to $22m.
One additionally point should also be understood. States can also levy their own estate taxes independently of the federal government. However, 38 of the state, California included, do NOT have an estate tax meaning that many people will not have to worry about estate taxes.
Thus, a complete answer to whether estate planning fees are tax deductible is that they currently are not but has come about only recently and could always change back if the political winds catch the estate planning sails just right again.