On September 4, 2014, comedy icon Joan Rivers passed away. Today, friends and family will say goodbye to Rivers at a memorial service in Manhattan.
Details about the funeral have not been made public in order to afford the family some privacy. However, it’s no secret that Rivers hoped for a funeral that rivaled her lifestyle: big and over the top. She outlined her wishes in her 2012 book, I Hate Everyone…Starting With Me, writing:
When I die, I want my funeral to be a huge showbiz affair with lights, cameras, action…I want Craft services, I want paparazzi and I want publicists making a scene! I want it to be Hollywood all the way. I don’t want some rabbi rambling on; I want Meryl Streep crying, in five different accents. I don’t want a eulogy; I want Bobby Vinton to pick up my head and sing “Mr. Lonely.” I want to look gorgeous, better dead than I do alive. I want to be buried in a Valentino gown and I want Harry Winston to make me a toe tag. And I want a wind machine so that even in the casket my hair is blowing just like Beyoncé’s.
Those arrangements – Meryl Streep notwithstanding – ought to be fairly easy to arrange with Rivers’ millions. In addition to her book royalties, appearance fees and salary at E!, sales of Rivers’ QVC merchandise have topped $1 billion. It’s clear that her family can afford as ostentatious a service as Rivers would have wanted.
Rivers would have probably gotten a kick out of the fact that the expenses associated with her funeral are tax-deductible for federal estate tax purposes – though as a smart businesswoman, I suspect she already knew that. It’s a somewhat appropriate final deduction for a woman who infamously hated paying taxes and has criticized President Obama for imposing higher taxes on the wealthy. I have to think that finally being able to expense some Harry Winstons has to make her happy.
It likely won’t make her happy that her estate is reduced by federal estate taxes in the first place. It’s difficult to figure the exact amount of Rivers’ fortune – from her $30 million penthouse to her Faberge egg collection – but even with some savvy estate planning, her estate is likely writing a big check to the government. For decedents dying in 2014, the exemption amount is $5,340,000: that means that federal estate tax is imposed on estates with a gross estate plus adjusted taxable gifts over that amount.
The estate is allowed to claim certain deductions against the gross estate. One of the allowable deductions is for funeral expenses and is reportable on Schedule J.
There is no actual dollars cap on the amount that you can claim on a Schedule J. Instead, the deduction is limited to an amount “allowable under local law” and may not, according to the instructions for the 706 (federal estate tax return), exceed the value of property subject to claims in the gross estate plus the amount paid out of property included in the gross estate but not subject to claims. That’s a complicated way of saying, roughly, that you can’t claim more in deductions than you can claim in assets.
Other than that, there is no real guidance in the instructions from IRS (downloads as a pdf) as to deductibility. In fact, the entire instructions specifically targeting funeral expenses take up just one line on the 706:
Funeral expenses. Itemize funeral expenses on line A. Deduct from the expenses any amounts that were reimbursed, such as death benefits payable by the Social Security Administration or the Veterans Administration.
The statute at section 2053 of the Tax Code is similarly brief.
It turns out that it’s a good thing that neither Congress nor the IRS stepped in to provide incredibly specific limitations on funeral expenses. You see, you and I have very different expectations for our funerals. This based on a lot of things: lifestyle, wealth and other resources, family size, view in the public eye and our own views about life and death. I don’t want – nor can I afford – a Joan Rivers sized funeral. However, if it were up to my mother, I would likely have an enormous funeral (my husband jokes that there will be both a parade and a mausoleum): she firmly believes that funerals are “for the living” and should allow those behind to demonstrate their grief appropriately. We’re also Southern and I’m the only girl in the family. You can do the math on that one.
The IRS does offer some general guidance via memos and their positions in court cases. The cap on deductions is largely interpreted in accordance with state and local laws but is also subject to a reasonableness standard based on facts and circumstances. If Joan Rivers really does have the funeral of her dreams, the associated expenses are likely deductible because they reflect her both lifestyle and her position. We expect bigger than life from Joan Rivers. You don’t have the same expectations from me despite what my mother thinks. There is a distinction and it’s one that the IRS takes into consideration: one size does not fit all.
Deductible expenses include those that you’d expect like costs to pay the funeral home and secure a tombstone and/or burial plot, as well as payments for church or other services. Those expenses are clearly appropriate under the Regs at 26 CFR 20.2053-2 which provides:
A reasonable expenditure for a tombstone, monument, or mausoleum, or for a burial lot, either for the decedent or his family, including a reasonable expenditure for its future care, may be deducted under this heading, provided such an expenditure is allowable by the local law. Included in funeral expenses is the cost of transportation of the person bringing the body to the place of burial.
Deductible expenses may also include some that you wouldn’t expect like flowers and a funeral luncheon. The latter can be controversial: in 2006, the Tax Court denied expenses (case downloads as a pdf) for a funeral luncheon which was not well-supported with itemized receipts and was treated more like a “thank you” for friends and family rather than part of what would have been considered a traditional funeral service.
The IRS rules, together with case law, likely translate into most of the expenses associated with today’s service for Rivers as being deductible. As for future services and tributes, including public memorials? Likely not deductible since those will be considered, for tax purposes, separate from funeral expenses. The Davenport case, linked above, drew a distinction where the funeral and luncheon were held in different places. While the specifics of that case may be enough to distinguish it from others, the ruling offers some insight into how judges (and the IRS) might regard funeral services which are quite different from funeral receptions, additional tributes or luncheons. That distinction is important is still open to reasonable interpretations, as David Shulman surmised following the death of Michael Jackson.
Funeral expenses may also be deductible on a state inheritance and/or estate tax return, if your state imposes such a tax. My home state of Pennsylvania does have an inheritance tax and does allow a deduction for funeral expenses. The instructions (downloads as a pdf) specifically outline deductible expenses (by way of explanation but not limitation) which include “opening of graves, services of mortician, embalming and transportation, casket, clothes, flowers, fee for religious service, funeral refreshments, the cost of a burial lot or other resting place, and purchase and erection of a marker, gravestone or monument on decedent’s final resting place.” New York, where Rivers had owned property and spent much of her time, does impose an estate tax on certain estates as does Connecticut where Rivers also had ties; California, where Rivers moved to be closer to her daughter, Melissa, does not.
If you live in a state that doesn’t impose an inheritance and/or estate tax return – and your gross estate is under the exemption amount for federal estate tax purposes – there is no deduction because there’s no applicable tax.
While other expenses deductible on the federal estate tax return at Schedule J include those related to the administration of the estate may be claimed on the federal estate tax return or the estate’s federal income tax return, that’s not the case with funeral expenses: you may only claim the deduction on the federal estate tax return. Similarly, you can’t claim funeral expenses on a personal income tax return (despite a popular misconception, they cannot be lumped together with medical expenses). For federal purposes, funeral expenses are only deductible on the federal estate tax return.
Of course, it’s important to remember that taxes shouldn’t change how you live your life or how you say goodbye. While scoring a deduction may be welcome for your beneficiaries come tax time, don’t get so caught up in what’s deductible (or not) that you skimp on the things that matter. If you want a big parade, have a big parade. If you want a quiet service on a mountain, have a quiet service on a mountain. Don’t base your final plans on the discretion of Uncle Sam. Be remembered in the way that you want and in a way that gives your loved ones some peace. Because maybe my mom was right (she is, occasionally).