Estate Planning

Deductibility of Estate Planning Legal Fees

By Gregory Herman-Giddens

Contrary to what many of my clients assume, legal fees for general estate planning are not deductible for income tax purposes.  Estate planning fees are only deductible to the extent that they represent income, gift, or estate tax planning or advice. Wong, Tax Court Memo 1989-683. 

For a relatively sophisticated plan invovling credit-shelter and marital trusts, the deductible portion of the fee may be about 50% at most.  The deduction is a miscellaneous itemized deduction, meaning it is subject to the two percent (of adjusted gross income) floor.  IRC Section 67.

The effect of the 2% floor is that most people who pay for tax planning, who are generally high-income, do not get the benefit of the deduction.

Legal fees for business-related legal advice and services are deductible by the business. However, It is not proper to for a self-employed person to pay for their personal estate planning out of his or her business in order to get a deduction.

In any event, make sure you talk to your estate attorney and CPA to ensure that any deduction you take is lawful.

Full post as published by North Carolina Estate Planning Blog on November 20, 2008 (boomark / email).