Having an estate plan is one of the most important end-of-life plans you need for yourself and your family. However, estate planning is a complicated process, plus it comes with some hefty costs like legal fees from attorneys, setting up a trust or creating a will.  

You may wonder if estate planning fees are a legitimate deductible business expense and if you can try to recoup some of them. This guide uncovers the truth about whether estate planning fees are deductible.

Key Takeaways 

• According to the Tax Cuts and Jobs Act in 2018, estate planning fees are not tax-deductible and are considered personal expenses. 
  
  

• Itemized estate planning deductions are no longer accepted except for legal fees from succession planning, generation-skipping transfer tax returns, fiduciary income tax returns, appraisal fees and incremental investment advice costs. 

  
  

• Consult with a CPA to get expert tax advice, maximize deductions, stay updated on changes in tax laws, and get peace of mind that your estate plans are in good hands.  

  
  

Is Estate Planning a Business Expense?

If you just began your estate planning, you’ll likely notice it can be costly due to the legal fees associated with it. Costs include attorney services for creating estate plans, financial advice and counseling. Unfortunately, there is no real way around them. Unless you have experience creating an estate plan, having a professional ensure it’s airtight is invaluable. 

The Tax Cuts and Jobs Act made estate planning much more difficult, but not entirely impossible, to deduct in taxes. While estate planning is no longer considered a business expense, succession planning is still a deductible expense in the event of the transfer of business assets, maintenance or protection of the business.   

Succession planning is what businesses use to ensure their business continues to run without interruptions. So, if you make succession plans to pass your business’s assets, leadership, or ownership to another person, you can deduct those expenses incurred during this planning. These costs can include consulting and legal fees from your taxable income. 

During estate planning, you’ll notice your documents and important papers piling up pretty quickly, including important emails. 

Staying organized and tracking all your documents can feel like a full-time job. Use Trustworthy, a family-operating system, to keep your estate planning information in one secure location. The easy-to-use collaboration features allow you to share your planning with your attorney, wealth advisor or other family members.

Are Estate Planning Expenses Deductible?

Attorney Edmund Yan from Tree of Life Law Firm explains:

“Unfortunately, estate planning fees are no longer deductible from your personal taxable income. The IRS actually changed that back in 2017 with the Tax Cuts and Jobs Act. It’s no longer available as an itemized deduction. So, unfortunately, if you spent money setting up a trust or if you did it yourself, and there’s expenses associated with it, you can’t deduct it.”

But what about itemized deductions? Before the Tax Cuts and Jobs Act was introduced in 2017 and became effective in 2018, the IRS used to allow certain estate planning fees to be passed as business expenses. These itemized deductions included expenses incurred for things such as investment advice, maintenance of income-generating property, tax advice, and other legal fees like drawing up wills and power of attorney. 

For the expenses to qualify, the IRS stated they had to exceed 2% of the taxpayer's adjusted gross income (AGI). 

However, that changed in 2018, so now these itemized expenses no longer qualify for tax deductions unless they’re related to succession planning for small businesses. For now, the IRS views estate planning expenses as personal expenses. 

There is a small glimpse of hope for taxpayers coming to the end of 2025, when Congress must decide whether to renew or change the act. There is no answer yet on what will happen, and it will largely depend on the outcome of the general politicians and the changes that will follow.

The Importance of Consulting a CPA

With removing estate planning as a business expense, you’ll want to look for other ways to deduct taxes. Consulting with a Certified Public Accountant (CPA) to assist you during this process will save you money and countless headaches. 

Here’s why you should consult a CPA:

Tax Expertise

There are other ways to maximize your tax advantages, and estate planning and hiring a CPA can help you minimize the amount of estate taxes you need to pay. Hiring a CPA can help optimize capital gains taxes so your assets are adjusted to fair market value during your passing. 

Your CPA can help you with succession planning, which is still a deductible business expense of estate planning. 

Maximize Deductions

Your CPA will know more about deductions and how to maximize them, especially regarding estate planning. Itemized expenses like legal and consulting fees are no longer accepted unless they are connected to a trade or a business, according to the IRS Section 162. Your CPA will know what expenses qualify for deductions and how to do this legally.    

Succession planning is a deductible expense that your CPA can assist you with to ensure you save money while staying tax-compliant. 

Changes in Tax Laws

The world of tax laws is often confusing, especially when you’re trying to stay compliant. 

There have been a lot of key tax changes for the 2024 tax year that taxpayers must be aware of. Not knowing these changes can end up costing you money and your sanity. Let your CPA stay ahead of the changes and ensure your estate and other income taxes are taken care of. 

Peace of Mind 

Not only can estate planning be costly, but it can be very stressful if you don’t know what you are doing. You need to do so many things, from making a thorough list of physical and digital possessions to selecting the beneficiaries of your accounts and insurance policies. 

You also need to make an inventory of all your debts and where they come from, like student loans, private loans, car loans and mortgages. You also need to provide contact details or account information to these lists. Use the Money tab on Trustworthy to enter all your financial details, like credit card numbers and other confidential information.  

Once you’ve made all your lists and stored all your important tax documents, like expense lists, on Trustworthy, you can share access with your CPA. They’ll appreciate your organizational skills, making the entire process smoother and less stressful. 

Frequently Asked Questions (FAQs)

What are the benefits of using an estate planning attorney?

When you begin estate planning, you’ll want to use an attorney to ensure everything is properly taken care of. Some benefits to using an estate planning attorney include having an estate plan that reflects your wishes without miscommunication errors. It also ensures your estate plan complies with all tax and federal laws. 

Other benefits include customized estate plans, no probate, or a less substantial probate process for your beneficiaries. 

Is the cost of setting up a trust tax deductible?

While estate planning is not considered deductible, the Tax Cuts and Jobs Act does allow you to deduct some expenses of a trust. 

Some of these costs include tax preparation fees like generation-skipping transfer tax returns and fiduciary income tax returns, including the decedent’s final individual income tax return. 

Appraisal fees used to determine the market value of assets are also tax deductible, as well as incremental costs of investment advice. 

Is writing a will tax deductible?

Writing a will is no longer tax deductible according to the 2018 Tax Cuts and Jobs Act because it’s considered a form of estate planning, which is no longer a business expense. A way to work around this is to carry out succession planning if you have a small business you wish to transfer to a loved one after your passing. 

The Tax Cuts and Jobs Act is due to be renewed in 2025, so estate planning may become a legitimate business expense. 

Are probate fees tax deductible?

Probate fees, also known as the cost of the estate administration, are not entirely tax deductible. There are some exemptions. For example, fees paid to a fiduciary for administering the estate, like filing a fiduciary tax return on behalf of the estate, are considered tax deductible. Consult with an experienced CPA to ensure you comply with local and federal tax laws during estate planning.