Critter Corner: Are Estate Planning Services Tax Deductible?

Dear Saki and Alley,
It is November and the end of the year is drawing near. Every year, at around this time, I begin paying close attention to tax deductions. I was wondering, if I use your firm to do my estate planning in 2014, are my legal expenses tax deductible?
Juana Deduct-Allican
Dear Juana,
The answer is YES, a percentage of your estate planning expenses are tax-deductible.In both Merians v. Comm’r, 60 TC 187 (1973) (involving estate planning using an irrevocable trust) and Wong v. Comm’r, TC Memo. 1989-683 (1989) (involving estate planning using a revocable trust), the Tax Court ruled that twenty percent (20%) of a non-itemized estate planning bill was deductible as tax advice under Section 212(3).

Attorney’s fees are deductible only to the extent they exceed 2% of the taxpayer’s adjusted gross income and they are subject to a phase out when the adjusted gross income exceeds a certain amount.  They cannot be taken into account in computing the alternate minimum tax.  In order to take advantage of the 2% rule, the client should pay all deductible legal fees in one year.

Attorney’s fees are deductible to the extent they are incurred:

  • to produce income that is includable in the recipient’s gross income;
  • for the management, conservation, or maintenance of property held for the production of income;
  • in connection with the determination, collection, or refund of any tax;
  • to the extent they are paid for tax planning adviceExpenses, to be deductible under section 212, must be “ordinary and necessary.” Thus, such expenses must be reasonable in amount and must bear a reasonable and proximate relation to the production or collection of taxable income or to the management, conservation, or maintenance of property held for the production of income.* When deductible, attorney’s fees are treated as “miscellaneous itemized deductions.”
Here at Farr Law Firm, P.C., we suggest that 20% of the total fees that you paid to our firm can appropriately be considered deductible tax advice. If you have a friend or loved one who hasn’t had the chance to meet with an Estate Planning Attorney this year, he or she can make an appointment for a consultation by calling us at 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, or 202-587-2797 in Washington, DC.
Saki and Alley
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About Renee Eder

Renee Eder is the Director of Public Relations for the Farr Law Firm, and gives the voice to the Critters of Critter Corner. Renee’s poodle, Penny, is an official comfort dog who she and her children bring to visit with seniors who are in the early stages of dementia at a local senior home once a month.