The attorney that set up my Trust papers gave me a receipt and said it was
Does this type of deduction fall under the 2% limitation rule?
Is there a particular place on the forms where must be entered?
Personal legal expenses, such as creating a will or "living" trust, are
Here's what is deductible, according to Pub 529:
"You can usually deduct legal expenses that you incur in
attempting to produce or collect taxable income or that you
pay in connection with the determination, collection, or
refund of any tax."
So if the creation of your trust was for the purpose of generating
current taxable income, then some of the expense might be deductible, as
long as it is stated separately from any other legal expenses of the
trust. In that case, the expense would go on the trust income tax
return, Form 1041.
I know this is true, but where do you draw the line between tax planning and
estate planning? For example, if it weren't for death taxes, I would not
do any estate planning, just write a will or a do it yourself trust to avoid
probate. But the real estate planning I will need is due to the existence
(now and then) of death taxes.
Upon reading Stu's reply, I found the following document which
elaborates some of the conditions for deductibility:
(if the above link doesn't work, go to
the document library under "Wills & Trusts").
The key in all cases is to accurately break out the tax-planning related
costs from other personal costs. For a revocable trust ("living
trust"), such expenses will end up decreasing your taxable income if you
itemize on Schedule A and then only to extent the expenses exceed 2% of
Trusts do a whole lot more than avoid taxes. They avoid probate,
they allow for keeping control over gifts in a way that wills just
can't. None of those are tax or income producing issues.
If you could get a motorcycle to get around, but decide on a car
because you don't want to get rained on, is the excess cost
deductible? Sorry, but no.
You have a valid point, AFAIC. Along those lines, here is an article
from earlier this year by a Texas law school professor which proposes
"No Deductions for Tax Planning And Controversy Costs".
This is part of the Shelf Project
From the abstract:
"The law gives a negative tax or subsidy to tax
planning and controversy work, because the costs of
that work are generally deductible. But the return
from the investment, in the form of less tax to be
paid, is not taxed."
Either you miss my point, or I am confused by what you have said.
I KNOW that trusts do a number of things. I can create a trust to avoid
probate, control assets, determine where the assets go (eventually), etc.
But to the extent I wish more clever tax guidance, that is why I might hire
you. That being the case, isn't all that I hire you for, i.e. more clever
tax guidance, deductible?
And, I think it may have been lost in the thread earlier, but is such
deductibility subject to the 2% AGI threshold?
My point was that only the tax planning part is deductible. Just
because you have to pay more than you might to get the tax planning
part among other features, that doesn't make the non-tax-planning
If all you want to do is avoid what might be called the marital
penalty in the estate tax, you don't need a lawyer or a trust for
that. Just write your own will and leave your half of the marital
estate to your kids and bypass your wife. That doesn't cost
When you get a trust to do the same thing, it also has non-tax
benefits that you can't get without a trust - e.g. having the
spouse able to control and get income and principal from the trust.
You can't deduct for the non-tax benefits even though the tax
issues may be the primary ones on your mind.
According to the article Mark linked to, it is subject to the
threshold. I don't do returns, so I don't have specific knowledge
on this issue.