An executor for a family in Brooklyn receives our firm’s final invoice for administering her father’s estate. She’s relieved the Surrogate’s Court process is nearly complete, but now she faces the estate’s final tax returns. Looking at the legal fees, she asks a prudent question I hear often: “Can the estate deduct this expense?”
The question is critical because every dollar deducted is a dollar preserved for the beneficiaries. The answer is not a simple yes or no. It depends entirely on who is trying to take the deduction—the individual beneficiary or the estate itself.
The Individual vs. The Estate
Before 2018, the rules were different. An individual beneficiary who paid for legal advice related to their inheritance might have been able to claim a miscellaneous itemized deduction. The Tax Cuts and Jobs Act of 2017 eliminated that possibility for most taxpayers. If you personally pay a lawyer to contest a will or advise you on your rights as a beneficiary, those fees are almost certainly not deductible on your personal income tax return.
The estate, however, is another matter.
When a person dies, their assets form a legal and financial entity: the estate. This entity has its own taxpayer identification number and must file its own tax returns—both for income it generates and for the total value of its assets if it exceeds a certain threshold. The legal fees incurred to administer this entity are a necessary expense of the estate itself.
Stewardship.
This is the key distinction. The expenses are not personal; they are administrative costs necessary to marshal assets, pay the decedent’s final debts, and distribute the remaining legacy to the rightful heirs. They are part of the fiduciary’s duty to manage the estate’s affairs.
Administrative Expenses in New York Surrogate’s Court
The executor or administrator of an estate has a fiduciary duty to act in the best interests of the beneficiaries. This includes paying the legitimate expenses of the estate, which a New York Surrogate’s Court must ultimately approve. These costs are not just a line item on a budget; they are a legal component of the estate settlement process.
Legal fees fall squarely into this category. The work an attorney performs—probating the will, preparing an inventory of assets, handling creditor claims, and preparing accountings—is essential to the proper administration of the estate. The court recognizes these as necessary expenditures. In fact, SCPA § 2110 grants the Surrogate’s Court the power to review and approve the compensation of attorneys, ensuring the fees are reasonable for the work performed.
Because these fees are a court-recognized, necessary expense for the estate to function, the IRS allows the estate to deduct them. The executor’s decision is where the estate should take that deduction.
The Executor’s Strategic Choice: Income or Estate Tax?
An executor has a choice to deduct administrative expenses, including attorney’s fees, on one of two tax returns:
- The Estate’s Income Tax Return (Form 1041): If the estate holds assets that generate income during the administration period—such as rent from a property or dividends from stocks—it must file an income tax return. Deducting legal fees here reduces the estate’s taxable income.
- The Federal Estate Tax Return (Form 706): This return is only required if the gross value of the estate exceeds the federal estate tax exemption—a very high number ($13.61 million per individual in 2024).
For the vast majority of families we represent, the estate’s value falls well below the federal and New York State estate tax thresholds. This makes the choice simple. Since the estate will owe no estate tax, a deduction on Form 706 would be worthless. The far more effective strategy is to deduct the legal fees and other administrative costs on the estate’s income tax return, Form 1041, where it directly reduces the income tax owed. This preserves more of the estate’s liquid assets for the beneficiaries.
This isn’t an automatic process. The executor must make a formal election, confirming that the same expenses have not been deducted on the estate tax return. It is a deliberate act of financial stewardship that requires careful guidance.
Finalizing the Estate’s Financial Picture
The role of an executor is demanding, involving legal obligations, financial management, and the delicate task of communicating with family members. Understanding how to handle expenses like legal fees is a core part of that responsibility. While you cannot deduct these fees on your personal return, a well-advised executor can ensure the estate itself takes full advantage of the deductions it is legally entitled to. This is a final act of preserving the legacy entrusted to your care.
If you are serving as an executor and are preparing the estate’s tax filings, our firm can provide a fiduciary review of the estate’s expenses to ensure every available deduction is properly identified and claimed.
