When it comes to estate planning, one of the most common questions is whether the associated fees are tax-deductible or not. The short answer is no, but there may be ways to reduce the costs associated with creating an estate plan. Estate planning expenses used to be tax deductible, but this is no longer the case. Estate planning is the process of organizing a person's assets and properties for distribution to beneficiaries in the event of death. This includes creating legal documents such as trusts and wills, as well as directives like permanent powers of attorney and living wills.
Generally speaking, most estate planning services are not tax deductible. However, there are some exceptions. Estate planning legal fees can be deducted if they are related to income-generating assets. This means that if you are using estate planning services to manage investments or other sources of income, you may be able to deduct some of the associated costs. Other instruments such as health care directives, powers of attorney, and guardianship designations do not qualify for deductions. It is important to note that 38% of states, including California, do not have an estate tax.
This means that many people will not have to worry about estate taxes at all. Additionally, a political change in Washington could reactivate deductions for estate planning expenses. Estate planning fees that are not tax deductible would include legal advice on creating a trust or on issues related to the transfer of assets. This is good news for anyone concerned about how much they will have to pay an estate planning lawyer in legal fees. The Tax Cuts and Jobs Act modified the practice of deducting wealth planning expenses, at least for now. Those who used to rely on deducting these expenses will now have to find other ways to save when transferring their wealth. The standard deduction doubled under the Tax Cuts and Jobs Act, making itemizing taxes less attractive.
This means that you would have to itemize your taxes in order to deduct estate planning expenses. It is important to understand the importance of a well-thought-out estate plan and how it can help protect your loved ones from unnecessary challenges. It is recommended that you consult with a qualified CFP attorney, TEP, or tax accountant before making any decisions regarding your estate plan.