Are Estate Planning Fees Tax Deductible in New York?
Estate planning is the process of structuring the disposition of one’s current and projected assets. Estate plans typically account for both expected and unexpected life events, and they often contain provisions addressing the distribution of assets in both life and death. In addition to preventing the state from deciding where and how your property is distributed after disability or death, there are often tax benefits available to those who engage in the estate planning process. One of these benefits is tax deductibility, which is a reduction of one’s taxable income. However, in order for estate planning fees to be tax deductible in New York, certain conditions must be met. Specifically, in order to achieve tax deductibility, the IRS requires that estate planning fees be paid:
- For the collection or production of income;
- For the maintenance, conservation, or management of property held for the purpose of income production; or
- In connection with the refund, collection, or determination of any tax.
In practice, these requirements may be met in a number of ways. For example, if an estate plan includes guidance on the creation of an income producing instrument such as an income trust, or if it provides instructions regarding property transfer methods for the purpose of avoiding certain federal taxes, then the IRS would likely consider associated fees to be tax deductible. Additional examples include trust tax preparation fees, account custodial fees, and investment advice for trusts owned by the estate.
However, it is important that documentation be available that clearly identifies the above expenses as being for the future or current production of income or the payment of future or current tax. Ideally, such paperwork should be prepared by an accountant, attorney, or other qualified professional. In addition, it should be noted that estate planning activities related to simple property transfers, guardianship issues, or the use of estate planning instruments such as living wills, powers of attorney, or living wills are considered to be personal expenses and do not fit into any of the tax deductibility categories discussed above. All tax deductions related to estate fees are required to be taken as miscellaneous itemized deductions and are subject to what is often called the 2% floor, which is 2% of adjusted gross income.
Estate planning can be extremely complicated, and it’s easy to overlook critical steps when attempting to navigate the process alone. In order to protect your rights and plan for your future, please consider contacting an attorney to discuss your estate planning options. At O’Connell and Aronowitz, our experienced New York estate planning attorneys provide individuals in Albany, Latham, Plattsburgh, Saratoga, and upstate New York with sophisticated estate planning guidance, including the preparation of wills, trusts, and other essential services. Estate planning is essential for everyone, regardless of financial status, in order to protect oneself and provide for loved ones. Please contact us for a consultation.
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