Estate planning can be a costly business, but it’s an essential step to ensure your assets and last wishes are taken care of once you’re gone. There’s a question that often gets asked by people who want to get their estate in order –
Are these fees tax deductible?
Well, I’ll be blunt: estate planning fees are usually not tax deductible. Or, at least, not anymore. Under the current IRS rules, your estate planning costs, such as legal fees, filing fees, or administrative costs, can no longer be claimed as itemized deductions.
But there’s a lot more to talk about here. In this guide, I’ll talk about everything you need to know regarding the cost of estate planning and strategies to minimize it.
The Shift in Tax Deductibility
Before 2017, prior to the Tax Cuts and Jobs Act, taxpayers had the option to deduct several estate planning fees, which were chalked up as “miscellaneous itemized deductions.” This included the costs for things like:
- Drafting trusts, wills, and/or other legal documents
- Investment and tax planning advice for estates and trusts
- Trust administration and tax preparation fees
However, with the reformed legislation, taxpayers no longer have the ability to claim these deductions. So, these estate planning expenses are no longer eligible to reduce your taxable income.
There is a silver lining here. The current non-deducibility nature of estate planning fees is not permanent. In fact, the provisions set by the Tax Cuts and Jobs Act are set to expire by the end of 2025.
Although it’s impossible to know which provisions will be renewed, the deductibility rules could be revisited and revised in the coming years. A shift in the political landscape could also revive the ability to deduct some of the estate planning costs.
Strategies for Minimizing Estate Planning Expenses
While estate planning fees may not be tax-deductible currently, there are still ways to manage the costs:
- Shop Around for Estate Planning Attorneys
The cost of attorneys can vary widely when it comes to estate planning. So don’t be afraid to shop around and compare quotes. Reaching out to multiple law firms to find one that suits your budget without sacrificing expertise is the best way to save your money on legal fees.
- Consider Online Legal Services or DIY Tools
If your estate planning requirements are relatively simple, online legal service or DIY estate planning tools can be pretty handy. Creating basic will or guardianship designation can be done on the cheap using these services. And they are also more affordable than working with a traditional attorney.
However, this method may not work out well for you when your requirements are complicated. In that case, it’s best to rely on the expertise of a seasoned attorney even if it costs you more.
- Prioritize Essential Documents
When starting the estate planning process, focus first on the most critical documents, like a will and power of attorney. You can always add more complex instruments, like trusts, at a later time if needed. Prioritizing the essentials can help minimize upfront costs.
- Coordinate with a Financial Advisor
If you already have an established relationship with a financial advisor, consult with them when planning your estate. They may be able to provide guidance on tax-efficient strategies or recommend estate planning attorneys in your area that offer competitive rates.
Get in Touch
Cost-saving doesn’t always mean cost-efficient. When it comes to a sensitive subject such as estate planning, I never recommend taking the easy way out. Even if you need to spend a bit more, it’s best to go with a financial advisor who knows the ins and outs of the subject.
Get in touch with me today, and let me help you with your estate.