Estate planning involves various costs, including legal fees, financial advice, and administrative expenses. If you’re creating or updating an estate plan in California, you may wonder if these fees are tax-deductible. While tax laws on deductibility have changed in recent years, there are still some situations where you may be able to claim certain estate planning expenses. Here’s a guide to understanding if and when estate planning fees are deductible in California.
Are Estate Planning Fees Tax-Deductible?
In general, estate planning fees are not fully deductible for individual taxpayers due to recent changes in tax laws. Under the Tax Cuts and Jobs Act of 2017 (TCJA), many miscellaneous itemized deductions—including most personal estate planning expenses—were suspended for individual taxpayers through 2025. This change impacted the ability of individuals to deduct certain legal, tax, and advisory fees from their taxable income.
However, there are still cases where estate planning fees may be deductible, especially when they are related to income-generating activities, business matters, or the management of taxable estates. Here’s a breakdown of the circumstances in which estate planning fees may be partially or fully deductible.
When Estate Planning Fees May Be Deductible
1. Fees Related to Taxable Estates
If you’re managing a taxable estate—an estate whose value exceeds the federal estate tax exemption ($13.61 million per individual in 2024)—some estate planning fees may be deductible. Taxable estates typically require tax planning, filing of estate tax returns, and other specialized services, and certain costs associated with these activities may qualify as deductions for the estate itself.
Deductible Expenses May Include:
Preparing and filing the estate tax return (Form 706)
Professional fees for tax planning related to reducing estate tax liability
Costs associated with administering and distributing a taxable estate
These deductions are usually claimed on the estate’s tax return, not the individual’s personal tax return.
2. Trust and Estate Income Tax Planning
For those managing trusts or estates that generate income, some legal and administrative fees related to income tax planning may be deductible. If the trust or estate has income that requires filing a federal income tax return (Form 1041), fees associated with managing or investing income-producing assets can be deductible. For example:
Fees for trust administration and compliance with federal tax obligations
Accounting or legal services directly tied to managing income-producing investments held in the trust
In these cases, the deduction is taken on the trust or estate’s tax return, not by the individual beneficiaries.
3. Fees for Business-Related Estate Planning
If you own a business or rental property and incur estate planning fees related to business succession or asset protection, some of these expenses may qualify as deductible business expenses. For example, fees for creating a business succession plan or setting up a family limited partnership (FLP) could be deductible as ordinary and necessary business expenses. However, this applies only if the costs are related to the ongoing operation of the business and are not purely personal in nature.
4. Investment-Related Advice and Asset Management
Estate planning often involves managing and protecting investment assets, which may generate income. Fees directly related to the management of income-producing investments could qualify as deductible expenses under certain conditions. However, the IRS requires a clear connection between the expense and the generation of taxable income, so documentation is crucial.
Example: If you incur legal fees to set up a trust to manage rental properties or investments, some of the administrative costs tied to managing those income-producing assets may be deductible.
Non-Deductible Estate Planning Fees
Many common estate planning expenses remain non-deductible for individual taxpayers. Here are some of the most common fees that typically cannot be deducted:
Personal Estate Planning Fees: Legal fees for drafting wills, revocable living trusts, powers of attorney, and advance healthcare directives are generally considered personal expenses and are not deductible.
Financial and Retirement Planning: Fees associated with general financial planning, retirement planning, or life insurance policies are considered personal expenses.
Expenses Not Directly Related to Income Production: Fees for setting up a simple trust for non-income-producing assets, basic estate plans for non-taxable estates, or planning that doesn’t involve income generation or tax savings are generally not deductible.
Documenting Deductible Estate Planning Fees
If you believe certain estate planning fees may be deductible under any of the categories above, it’s essential to maintain clear records and documentation. Here are some tips:
1. Request an Itemized Invoice: Ask your attorney, accountant, or financial advisor to provide an itemized invoice that breaks down which services were rendered. This allows you to separate potentially deductible expenses from non-deductible ones.
2. Categorize Expenses: Label and categorize expenses related to income-producing activities, business-related matters, or estate tax planning. This documentation will be useful if the IRS requests proof of deductible expenses.
3. Consult a Tax Professional: Estate and tax laws are complex, and a tax professional can help you determine which fees may qualify as deductions. They can also ensure you’re taking full advantage of allowable deductions while remaining compliant with IRS guidelines.
Key Takeaways
1. Most Personal Estate Planning Fees Are Not Deductible: For most people, estate planning fees for creating a basic will, living trust, or other personal planning documents are considered non-deductible personal expenses under the current tax code.
2. Income-Generating Trusts and Estates May Have Deductible Fees: Trusts and estates that produce income and file a federal income tax return (Form 1041) may deduct certain fees related to income management, trust administration, or investment advisory services.
3. Business-Related Planning Expenses May Be Deductible: For business owners, some estate planning fees related to succession planning or protecting business assets may qualify as deductible business expenses.
4. Documentation is Essential: Detailed records and itemized invoices are necessary to substantiate any deductible expenses. Clear documentation is especially important when deductions are taken by estates or trusts, as the IRS may scrutinize these expenses.
Final Thoughts
While most personal estate planning fees are non-deductible for individual taxpayers, there are cases where specific expenses may be deducted, especially when they relate to taxable estates, income-generating trusts, or business succession planning. Understanding the rules surrounding these deductions can be challenging, so it’s often helpful to consult with an estate planning attorney or tax professional.
By working with experts, you can ensure your estate plan is both legally sound and tax-efficient, maximizing the benefits for you and your heirs. For California residents with complex estates or business assets, exploring potential deductions with a professional can make a meaningful difference in your overall estate planning strategy.
Contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.
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