Income Tax Deductions for Estate Planning Costs

 By Rose Drupiewski

Proper estate planning may provide substantial benefits to a client in the form of tax savings, asset protection, and control over the distribution of assets.  While such goals are typically the intended benefits of estate planning, clients and their planners should also be aware of potential unintended benefits.  For example, income tax savings may be obtained through the proper utilization of Code section 212, which allows an income tax deduction for all ordinary and necessary expenses paid or incurred during the taxable year for: (1) the production or collection of income; (2) the management, conservation, or maintenance of property held for the production of income; or (3) the determination, collection, or refund of any tax (including estate and gift taxes).

The costs incurred by an estate planning client, which may include attorney and accountant fees, appraisal costs, filing fees, etc., may be deductible under Code section 212.  In general, costs relating to the preparation of wills, trusts, and other testamentary documents are not deductible for income tax purposes, but costs relating to estate and gift tax calculations, tax planning, and return preparation may be deductible.  See, e.g., Wong v. Commissioner, T.C. Memo. 1989-683. 

When an estate planning engagement involves transactions relating to a business, such as a closely-held corporation of family limited partnership, some consideration should be given to whether costs that might be deductible under Code section 212 are more properly deductible under Code section 162, which allows a deduction for ordinary and necessary business expenses.

 

 

 

 

 

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