Estate planning is an essential tool at any stage in your adult life. It allows you to settle your affairs and create a plan for your assets after you die. While the peace of mind that estate planning provides is undoubtedly invaluable, settling one’s affairs can get costly when you factor in legal fees and accounting.
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The Previous Landscape: Estate Planning Deductions Before 2018
Before the tax reform changes took effect in 2018, some estate planning fees were eligible for itemized deductions per Internal Revenue Service rules. Less complicated measures, such as property or guardianship transfers, were not tax deductible. The IRS considered them personal expenses.
Under Schedule A rules for miscellaneous deductions, the IRS allowed taxpayers to deduct some estate planning fees. These miscellaneous itemized deductions included expenses incurred due to:
- The production or collection of income, such as investment advice
- The management, conservation, or maintenance of any real estate considered income-producing property
- Tax advice, tax preparation, and accounting from a tax professional
- Legal expenses for the drafting of wills, trusts, powers of attorney, and other documents
For instance, if you hired an attorney to help establish an income trust for a beneficiary, typically a loved one or friend, you could have deducted the trust preparation and legal costs on your annual income tax return.
Unfortunately, estate planning fees are no longer deductible from your taxable income. The IRS allowed itemized deductions on eligible estate planning fees until federal tax law, the Tax Cuts and Jobs Act of 2017 (TCJA), changed that rule. The legislation eliminated these deductions beginning in 2018, and these changes remain in effect until at least 2025.
The Effects of the Change: A Minimal Impact on Most Taxpayers
Previously eligible estate planning fees no longer qualify as itemized deductions. However, the impact of this change is likely minimal for most taxpayers. Before the reform, taxpayers were only allowed to deduct expenses related to the production of taxable income. To qualify, all miscellaneous expenses had to exceed 2% of the taxpayer’s adjusted gross income (AGI).
With so many hurdles to clear, claiming these deductions was never easy. Thus, most taxpayers aren’t likely to miss them now that they’re gone.
Will Estate Planning Fees Ever Be Tax Deductible Again?While the Tax Cuts and Jobs Act took effect in 2018 and most of its provisions will remain in effect until the end of 2025, there is a possibility that estate planning deductions may become tax-deductible again in the future. Whether these deductions are allowed again will depend on the political landscape of 2025 and the legislation’s overall popularity among voters. In the meantime, taxpayers must find new ways to save on their estate planning. Talking to an attorney experienced in financial advising can help.
The Benefit of Consulting an Estate Planning Attorney
Estate planning is an essential but complicated process. Determining how to allocate your assets and property can lead to complex questions and difficult decisions. An estate attorney in your area can draft documents, provide vital legal advice, and guide you through the process of settling your affairs. The right attorney can also advise advantageous estate planning techniques, such as charitable gifting.
How Hermance Law Can Assist You
Navigating the complexities of estate planning and tax law requires expert guidance. At Hermance Law, our experienced attorneys in Ventura, CA, are ready to assist you. We understand the intricacies of estate planning and can help you make informed decisions that align with your financial goals and objectives. Contact us today to schedule a FREE consultation and take the first step toward securing your family’s financial future.
