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 clearly 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 inprobate, would be deemed personal expenses that would not be deductible.
To deduct certain legal fees related to taxable
income:
- Type legal
expenses, deduction in the search or find box, click search.
- Click
on Jump to legal expenses, deduction.
- Continue
with the onscreen questions.
Legal deductions are limited to 2% of your Adjusted Gross Income
(AGI). Click on What is the 2% rule? for additional
information.
Generally, you
can't deduct fees paid for advice or help on personal matters or for things that don't
produce taxable income. For example, you can't deduct fees for:
- filing
and winning a personal injury lawsuit or wrongful death action—the reason
is that the money you win isn't taxable
- settling
a will or probate matter between your family members
- help
in closing the purchase of your home or resolving title issues or disputes
(these fees are added to your home’s tax basis)
- obtaining
custody of a child
- obtaining
child support
- name
changes
- legal
defense in a civil lawsuit or criminal case that's not work-related—for
example, attorney fees you pay to defend a drunk driving charge or against a
neighbor's claim that your dog bit and injured her child.
