Can You Deduct the Costs of Estate Planning on Your Taxes? (2024)

FAQs

Are estate planning expenses tax deductible? ›

Current Landscape: Estate Planning Fees Are No Longer Deductible. 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 Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the deductibility of financial advisor fees for tax years 2018 through 2025. The IRS allows you to deduct up to $3,000 (or $1,500 if married filing separately) in capital losses from your ordinary income each year.

If you seek legal advice regarding taxes on a trust – collecting or refunding estate taxes, for example – you can deduct these legal fees as miscellaneous deductions. However, the process of creating a trust is not deductible.

Funeral, burial, cremation or interment costs can be considered part of estate expenses, though these may not be covered by estate assets. Instead, they may be paid out of the death benefit associated with the deceased person's life insurance policy.

Specifically, are executor fees deductible on Form 1041? The short and long answer is yes. Form 1041 allows a variety of expenses and deductions to be charged against taxable income. Let's look at Form 1041, its requirements, and acceptable expenses.

Unfortunately, funeral expenses are not tax-deductible for individual taxpayers. This means that you cannot deduct the cost of a funeral from your individual tax returns. While individuals cannot deduct funeral expenses, eligible estates may be able to claim a deduction if the estate paid these costs.

A deduction from the gross estate is allowed for funeral expenses, administration expenses, claims against the estate, certain taxes, and unpaid mortgages or other indebtedness allowable under the local law governing the administration of the decedent's estate ( Code Sec. 2053; Reg. §20.2053-1).

An estate is allowed a $600 deduction in place of the personal exemption provided by IRC § 151. A trust that is required to distribute all of its income currently (a simple trust) is allowed a $300 deduction; and all other trusts are allowed a $100 deduction (IRC § 642(b)).

Ongoing adviser fees for maintaining an investment portfolio are deductible as these relate to producing the client's assessable income. That said, ongoing fees relating to assets that do not produce assessable income for the client (such as super accumulation interests) are not deductible to the client.

Are advisor fees deductible on a 1041? ›

No. The TCJA suspended the deduction for miscellaneous itemized deductions for individuals until 2025. Tax rules for estates and trusts say that fiduciary tax laws follow individual tax law, unless they are explicitly exempted. Therefore, estates and trusts can no longer deduct investment advisor fees either.

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

On Form 1041, you can claim deductions for expenses such as attorney, accountant and return preparer fees, fiduciary fees and itemized deductions. After the section on deductions is complete you'll get to the kicker – taxes and payments.

If you bought a life insurance for yourself — meaning it pays out upon your death — you can't deduct life insurance premiums. The IRS considers life insurance a personal expense and ineligible for tax deductions. Employers paying employees' life insurance premiums can deduct those payments, with some restrictions.

For instance, trustee fees are deductible in full because these fees are by definition incurred only when assets are held in trust. Other types of fiduciary expenses – most notably, investment advisory fees – can be subject to the 2% floor.

Property taxes are typically one of the largest expenses associated with owning a home. The good news is no matter if you decide to move into an inherited home or keep it as a rental, so long as you itemize your deductions, you'll be able to deduct the property taxes.

Funeral expenses aren't tax deductible for individuals, and they're only tax exempt for some estates. Estates worth $11.58 million or more need to file federal tax returns, and only 13 states require them. For this reason, most can't claim tax deductions.

Generally, the fees are not deductible since they are the same fees that would be incurred if the property (securities, typically) were not held in trust but by a hypothetical individual (and the fees are definitely not deductible on an individual income tax return after tax reform, the TCJA).

In general, attorney fees are deductible when incurred relating to profit or loss for a business. For example, the cost of hiring a lawyer to defend a patent or negotiate a contract is a deductible attorney fee, since these expenses are ordinary and necessary for the production of income.