In Tax Sheltering Death Care, Professor Victoria J. Haneman proposes the creation of tax-advantaged 529 End-of-Life (EOL) Plans to incentivize individuals to plan for death care expenses (for funeral, burial, or cremation) in a thoughtful way. Her proposed 529 EOL Plan (which operates like the existing 529 Plan for educational expenses) is “politically strategic in its subtlety” according to Professor Haneman because it “provides both a structure through which savings is incentivized for all and a targeted deathcare benefit is also delivered to our most vulnerable.” (P. 630.)
Before discussing Professor Haneman’s proposed 529 EOL Plan, a brief explanation of existing 529 plans for educational expenses is in order. Professor Haneman notes that her proposal is similar to one type of existing 529 plans (a state-administered tax-deferred investment account for educational expenses) but not to a different type of plan (a prepaid tuition program for in-state post-secondary schools. (Pp. 647-48.) Existing 529 plans allow for an account: (1) to receive contributions, (2) to treat account income as income tax-exempt, and (3) to have account withdrawals be treated as income-tax exempt if the withdrawals are made for a “qualified” educational expense. (P. 648.) Although contributions to existing 529 plans are not deductible for federal income tax purposes, around thirty states allow some type of deduction against state taxes. (P. 648.)
Haneman’s essay raises several important questions. First, do death care expenses truly raise problems that merit legislative attention? Professor Haneman notes the following facts and makes the following points. The third largest category of expense over the lifetime of the average American includes funeral, burial, or cremation costs. (P. 624.) Many people are required to beg or borrow to pay for death care expenses or even to abandon human remains. (P. 624.) Twenty percent of millennials, in particular, have used crowdfunding for death care expenses. (P. 624.) GoFundMe, for example, has indicated that its users had posted more than 125,000 memorial fundraisers, raising at least $330 million each year. (P. 624.) For 2023, the median cost of a funeral in the United States exceeded $9,000 when 40% of Americans had difficulty covering an unexpected $400 expense. (P. 626.) Professor Haneman writes that, as to death care expenses, “lower income families [have been] spending than higher income families in every year studied for almost three decades” (P. 626), noting that “extraordinary levels of consumption relative to overall wealth occur for the at-need consumer, perhaps driven by guilt of loss—but sometimes because of a desire to satisfy community expectations or avoid judgment.” (P. 626, n. 17.)
Next, what issues must be addressed to solve the problem of death care affordability? Professor Haneman identifies the following underlying, overlapping issues. First, consumer behavior relating to death care services is aberrational because of a desire to render death invisible. (P. 625.) Second, the funeral industry has an outsized voice in its own regulation. (P. 625.) Third, there are no reliable and broadly available death care prepayment instruments. (P. 625.) Finally, there is, in general, resistance to “expanding the (arguably inadequate) social safety net in the U.S.” (P. 625.)
As to aberrational consumer behavior, Professor Haneman notes that death care services can be “planned or purchased ‘pre-need’ before death or ‘at-death’ after death.” (P. 635.) Although preplanning is more efficient and inexpensive, death care services in the United States tend to be purchased at death “because we live in a culture that strives to make death and dying invisible.” (P. 635.) Emotions after the death of a loved one may include grief, sadness, confusion, and guilt, which may lead to impulsive and unwise decisions. (P. 636.) Professor Haneman makes the interesting point that the bereaved may seek “confirmation for simple or basic decisions (‘what would you do here?’),” which can be problematic when confirmation is sought from funeral industry professionals who may benefit financially from their own recommendations. (P. 636.)
As to the funeral industry’s outsized role in its own regulation and the industry’s resistance to change, Professor Haneman identifies four market features that the funeral industry uses to drive profits: (1) a lack of transparency, (2) the open casket funeral, (3) regulatory gatekeeping, and (4) the vulnerable grieving consumer. (P. 652.) The foregoing features appear to overlap a bit: practices within the funeral industry inflate the price of death care services marketed to vulnerable, grieving consumers by saddling them with hidden costs. (P. 652.) This may include upselling an open casket funeral, with the casket usually being the single biggest expense in the funeral budget. (P. 652-53.) Open casket costs pay for “preparation of the remains for viewing (embalming, hair, makeup, styling), a viewing and ceremony (facility fees, printed materials, flowers), and cemetery expenses (plot, vault or liner, headstone or marker, flowers, graveside ceremony fees).” (P. 653.) Professor Haneman discusses how excessive regulation of the funeral industry “entrenches status quo and drives up cost for consumers.” (P. 653.) Regulation also can create barriers to new technologies such as alkaline hydrolysis (liquid cremation), natural organic reduction, and promession (freeze drying remains and then burial of the resulting powder). (Pp. 653-55.)
As to the lack of reliable and broadly available death care prepayment instruments, I learned a lot from Professor Haneman’s discussion of the following issues surrounding the use of insurance policies to fund pre-need funeral contracts with specific funeral homes. First, two states (New York and Alaska) prohibit the use of insurance policies to fund pre-need funeral contracts. (P. 642.) Second, many insurance plans are available to consumers only over a certain age. (P. 642.) Third, there may be a waiting period (of a year or more) before insurance benefits are available. (P. 642.) Fourth, the insurance benefits are not necessarily portable to different states and may not transfer to a different funeral home (P. 642.)
Amid all of the foregoing societal and individualized concerns about death care services, a proposal for 529 EOL Plans is, per Professor Haneman, “practical and feasible.” (P. 664.) It would “require only a simple amendment to the Internal Revenue Code to expand the federally tax-advantaged framework” to apply to qualified death care expenses. (P. 664.) It “may be made ‘spend-down eligible’ for Medicaid if irrevocable, with a named funeral agent designated on the account to arrange for use of funds on death.” (Pp. 664-65.) Any balance from the original individual’s 529 EOL Plan “may be transferred to the 529 EOL Plan of a qualified individual (defined to include family members).” (P. 665.)
The income tax treatment of 529 EOL Plans would mirror that of existing 529 Plans. While contributions to a 529 EOL Plan would come from after-tax money, all income earned in a 529 EOL Plan account would be exempt from income tax, and withdrawals from the account (also exempt from income tax) could only be used to pay for qualified death care expenses. (Pp. 648, 665.) Professor Haneman notes that “making these accounts spend-down eligible for Medicaid purposes will require that no unqualified distributions are permitted at all.” (P. 665.) Professor Haneman also tailors her proposal for 529 EOL Plans to lower-income individuals by limiting contributions to an account to a lifetime maximum of $2,500 to $5,000. (P. 667.) Tax refunds, refundable tax credits, and low contribution amounts (possibly from the account owner’s paycheck withdrawal) all could be deposited into a 529 EOL Plan. (P. 667.) Finally, “any remaining account balance can be rolled into the 529 EOL Plan of another owner, up to $3,000.” (P. 667.)
Professor Haneman concludes her article with persuasive arguments in support of “[f]ederal subsidization of deathcare saving” (in the form of 529 EOL Plans) because it expands the social safety net and helps provide for “the basic human need of dignified death care.” (P. 670.) First, she argues that ignoring systemic gaps in society that force grieving survivors to resort to social media and crowdfunding to pay for death care services is a “moral failure” because it “perpetuates systemic inequality by forcing people to beg for assistance”. (P. 670.) Second, “the Internal Revenue Code has served an important role in expanding the social safety net and engaging with poverty mitigation.” (P. 671.) Finally, “expanding the deathcare safety net through the 529 EOL Plan structure is appropriate and necessary because of state-level regulatory capture.” (P. 672.) Professor Haneman contends that, because state regulators of the funeral industry are arguably “captured by industry gatekeeping behaviors that discourage healthy competition,” federal subsidies such as the 529 EOL Plan “will circumvent state-level regulatory capture to shape policies intended to advance healthy competition within the deathcare market and may be directly tailored to do so.” (P. 672.)
Tax Sheltering Death Care persuasively argues that 529 EOL Plans would be both beneficial and politically feasible. Professor Haneman summarizes her proposal succinctly: “It is a program that will help to deliver resilience to our most vulnerable consumers and to provide a means by which dignified deathcare options will be available to all.” (P. 674.)
