Trust Reformation: Questions To Consider For Determining Whether Costs Are Deductible
While the road to an estate administration is typically paved with good intentions, there are times when a will or trust is ambiguous as written. The result can be a costly will construction or trust reformation action. These actions are brought to have a judge interpret the will or rewrite the trust document. A trust or will construction proceeding typically asks the judge to address provisions within the document that are unclear or contradictory. A will or trust reformation proceeding is often brought to fix a tax problem or to better reflect the intent of the person who created the document. The expenses of these trust and probate litigation matters can quickly add up. Fortunately, they may sometimes be deductible for federal estate purposes.
Determining Whether the Costs of Trust Reformation Are Deductible
When trying to determine whether the litigation expenses for your trust or estate are deductible for estate tax purposes, consider the following questions:
Was the Expense Related to a Will Construction Matter?
Generally, the courts apply a broad definition as to what are deductible expenses of administration when litigation over the construction of a will is involved.
Was the Expense Approved by the Probate Court?
When the probate court has allowed deductions for the expenses of a will or trust construction or reformation lawsuit, these expenses may be deducted from the gross estate for federal estate tax purposes. To be considered deductible expenses by the probate court, the costs must have been allowable under California law and the Internal Revenue Service’s treasury regulations.
Was the Expense Related to Matters That Are Not Strictly Limited to Disputes Between Beneficiaries and Their Respective Shares in the Estate?
For example, the expenses related to attorney’s fees may include both the costs of defending or pursuing a trust or will construction, any reformation matter, as well as the costs of probate administration itself. If the probate court allowed this expense—it may still be deductible. The probate court will typically allow attorney’s fees if they were reasonable, beneficial to the estate, and allowed under California law. The attorney’s fees must benefit the estate as opposed to the person challenging the will or trust.
If you are ready to start your case, then please give us a call or fill out our Get Help Now form. A comprehensive overview of California Probate is available here. Should you have additional questions about trust litigation, you will find plenty of useful information in our Learning Center.