Law professors have the luxury of devoting time to thinking about ways to improve the law. Often this means looking at niche issues that may not arise with much frequency but that remain important. Professor William Drennan has done this quite well in his interesting article, Restricting Funeral Expense Deductions. The article focuses on the narrow issue of the deductibility of extravagant amounts spent at death by decedents who want to build monuments to themselves. While he does not argue that the law should prevent people from using their money for these expenses, his primary point is that society should not offer them a tax subsidy to do so because it promotes socially undesirable expenditures.
Part I of the article discusses average burials in the United States, extravagant burials in general, and the costs of extravagant burials to society. These costs include the tying up of land, the consumption of natural resources, and environmental damage due to the release of embalming fluids as well as other chemicals and metals into the ground, not to mention the environmental impact of using metals and cutting down trees to build ornate coffins.
I found Professor Drennan’s discussion of the history of burials to be fascinating. He notes that throughout history burial of the dead has been the norm rather than the exception. Early in our country’s history, this just meant burial in the ground in simple containers with no embalming. The Civil War increased the use of embalming because family members wanted to see their lost loved ones one final time, which meant that the body had to be preserved to be transported home. In the middle of the 20th century, very few people were cremated, and there was a growing expectation that a gravesite would be maintained and dedicated to the person in perpetuity. By 2010, burial in perpetual-care cemeteries had become the norm for wealthy Americans despite the growing popularity of cremation.
For some very rich people, there has always been a desire to have an exorbitant burial with a perpetual monument. The earliest examples are the pyramids of Egypt. More recently, in the same spirit, real estate baroness and “Queen of Mean,” Leona Helmsley, dedicated $3 million of her estate for the care and maintenance of a 1,300 square foot, $1.4 million mausoleum in Sleepy Hollow, New York, as final resting place for herself and her husband.
Part II of the article discusses the federal estate tax and specifically focuses on the deduction for funeral expenses. Although the estate tax now only impacts very large estates, its reach changes over time, and it could once again apply to more estates in the future. Currently, the estate tax is effectively a flat tax of 40 percent. The law provides that funeral expenses paid from the estate are deductible in calculating the federal estate tax. This means that, for taxable estates, each dollar paid out for funeral expenses saves 40 cents in taxes, which effectively encourages wealthy taxpayers to spend lavishly on their memorials.
Part III of the article analyzes policy concerns related to burials. Here, Professor Drennan focuses on the reasons why people want to bury the dead in cemeteries, including the desire to treat decedents with respect, a wish to help survivors with their grief, the need to prevent the spread of disease, and a wish to minimize the unpleasantness associated with death. He proposes bifurcating burial expenses into two components: (1) expenses that are compelled by law or social custom, and (2) expenses that are incurred voluntarily by the decedent.
In Part III, Professor Drennan also notes that some state laws hint at this bifurcation by limiting the amount that can be paid for funeral expenses when a decedent is insolvent because that money is effectively coming from the decedent’s creditors. In the same vein, a Treasury Regulation limits the deduction to a “reasonable expenditure for a tombstone, monument, or mausoleum, or for a burial lot,” although, as Professor Drennan observes, this reasonableness requirement may be invalid because it fails to appear in the text of the statute. Even if enforceable, the rule is not broad enough to regulate the tax treatment of extravagant burials because it does not limit deductions for other big ticket expenditures such as ornate coffins.
Professor Drennan identifies three options for reforming our current law. First, Congress could simply repeal I.R.C. § 2053(a)(1), which would preclude an estate from deducting any funeral expenses. Second, Congress could cap the funeral expense deduction at a specific dollar amount. Third, Congress could amend I.R.C. § 2053(a)(1) to limit the deduction to “reasonable” funeral expenses.
After analyzing the three reform options, Professor Drennan endorses a cap on the estate tax funeral expense deduction. Specifically, he would cap it at an amount approximating the average cost of an American burial. One way to do this, without recalculating the average cost each year, would be to adopt the gift tax annual exclusion amount (currently $17,000) as a proxy because that exclusion is periodically adjusted for inflation. This is the approach that he recommends.
Professor Drennan has written a thought-provoking article. I especially like his bifurcated approach to analyzing burial expenditures. While this may be a niche issue, I think he is correct that an unrestricted deduction does not make sense because it incentivizes behavior that is not particularly good for society. He correctly notes that there are a variety of ways in which we could create a reasonable limitation, and I think tying the cap to the gift tax annual exclusion is a simple solution that would adequately address the problem.
