How Much Can You Claim for Funeral Expense Deductions?
Federal and state estate taxes are excises taxes on the value of the property transferred by a decedent. State inheritance taxes are an excise tax on the value of property received by beneficiaries. In both cases, funeral expenses are permitted as deductions in determining the value of the property that is subject to tax.
In general, a deduction on estate taxes and inheritance taxes is allowed for funeral expenses, the cost of a burial lot, and bequests or amounts expended for the care of the lot in which the decedent is buried. Bequests for masses or other religious observances are allowed as deductions.
Reasonable and customary expenses for the purchase and erection of a monument, gravestone or marker on the decedent’s burial lot or final resting place are also deductible. The cost of a funeral meal is usually allowed as a deduction. Funeral expenses are never deductible from income for income tax purposes, whether it is an individual who paid them or an estate.
Similar expenses are deductible on estate or inheritance tax returns only if they are considered reasonable. Whether the expense is reasonable or customary depends on the decedent’s station in life and the size of the decedent’s estate.
In a 1950 case where the decedent included the authorization to spend $12,000 on funeral expenses in his will, and the estate actually spent $26,000, the deduction was limited to $5,000. According to the National Association of Funeral Directors, for 2014, the national median cost of a funeral was $7,181. If a vault is included, something that is typically required by a cemetery, the median cost was $8,508.
The costs for reasonable funeral expenses including, embalming, cremation, casket, hearse, limousines, etc. and floral costs are deductible. The cost of transporting the body for a funeral is a funeral expense, and so is the cost of transportation of the person accompanying the body.
Travel expenses for members of the family to attend the funeral are not deductible as funeral expenses. These are the personal expenses of the family members.
The federal estate tax permits deductions for funeral expenses to the extent they are allowable under state law. Since the IRS is only bound by decisions of a state’s highest court, it is possible to have amounts permitted as payable funeral expenses by the county Orphan’s Court and have the deduction denied by the IRS for the federal estate tax.
The duty of the executor, in regards to funeral arrangements, is primarily one of payment rather than of selection of the burial site or employment of the undertaker. The person who expects to be the executor should consider advising those arranging the funeral that their right to reimbursement from the estate is limited to what will be considered reasonable.
If the funeral is too elaborate, the person(s) making arrangements takes the risk of personal liability for the excessive costs. If there is any likelihood that the estate will be insolvent, that is, that the debts of the decedent will exceed his assets, special care must be taken as only a nominal sum may be allowed for the funeral.
Historically, the common law has taken the position that the decedent’s remains are not “owned” by the estate. “Ownership” of the body belongs to the next of kin. The decedent’s wishes expressed in their will, are not necessarily binding.
For example, the wishes of the decedent in regard to the disposition of the body are given a lot of weight. If a dispute arises, this is the general order of preferences recognized in case law:
- the wishes of a surviving spouse if a normal marriage relationship existed at death
- the wishes of the decedent, especially if strongly and recently expressed,
- the wishes of the next of kin according to their relationship or association with the decedent.
There is no hard and fast rule that will apply to all situations and each situation has to be considered on its own. If a dispute arises about the disposition of the decedent’s remains that cannot be resolved, the court has exclusive jurisdiction of the control of the decedent’s burial.
Extravagant burial directions are not honored as a matter of public policy. The movie star who wants to be buried in her Ferrari is a good example. Directions for internment in a solid silver or solid gold casket are in the same category. Directions to bury jewelry and other valuables with the decedent are also not enforceable under the law; they are considered to be contrary to public policy - the theory being that such practices will result in grave robbing. What are prepaid funeral plans?