Estate Planning Fees – Are They Tax Deductible?
Taxes are an unavoidable part of life for almost everyone. The U.S. is no exception to this rule. This is why you should look at all of your tax planning options when developing an estate planning strategy. You may be able to save yourself and your intended beneficiaries money in the future.
One aspect of tax planning you may be considering is how to deduct your estate planning fees. Although in the past you were able to deduct your estate planning fees from your taxes, this is no longer the case.
Previous IRS rules
Prior to the passage of the Tax Cuts and Jobs Act (TCJA) of 2017 which became active in 2018, you were allowed to deduct fees you pay to professionals that help you design and implement your estate planning strategy. These fees had been deducted on Schedule A of your tax return. This helped to minimize the costs of implementing a comprehensive estate plan that is essential to ensuring your family and loved ones are taken care of after you pass away.
Before the change in rules, the IRS would allow you to deduct legal fees related to developing an estate plan if they were incurred for certain objectives. These included producing or collecting income, tax advice or tax planning. Also, you used to be allowed to deduct these fees if they were related to the conservation, maintenance or management of property that produces income.
Changes in the law
Although these deductions are currently no longer available, there is always the possibility of this changing in the future. Of course, most of this will depend on the political environment in Washington D.C. The TCJA is set to sunset in 2025 and at that time elected officials will have to decide whether or not to renew the law.
If they renew the law and keep all provisions the same, it would mean that none of the allowable deductions would return. On the other hand, lawmakers may decide to only bring back some of the provisions which would mean potentially some deductions would again be allowed for estate planning fees. Of course, if they do not renew the law at all, then all the previous allowable deductions would be allowed once again.
Another scenario that could potentially happen is that lawmakers decide to make changes to the law prior to the TCJA sunsetting, reinstating some or all of the estate planning deductions that the TCJA initially eliminated.
With these potential changes in relevant law, it is important that you pay close attention to the latest happenings in Washington D.C. in order to be ready to alter your estate and tax planning strategies to optimize your financial situation. Unfortunately, most people do not have the time or expertise to stay up to date on these things. Therefore, it may be a good idea to leave this up to a professional financial advisor who would be well-equipped to guide you and keep your estate plan and tax strategy current.
Any opinions are those of the author and not necessarily Raymond James. Any information provided is for informational purposes only and does not constitute a recommendation.