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How an Executor Can Leverage Funeral Estate Tax Deductions

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By: HeirSearch.

Estate tax—also known as federal estate tax—is paid by the estate based on the value of a decedent’s property. As part of settling an estate, executors who use the estate’s funds to pay for funeral costs may be able to claim a deduction for funeral expenses.

Many estates often forego this deduction since their estate value is less than the taxable amount. However, in cases where a decedent’s assets are worth over $11.70 million, executors can use various deductions, including funeral expenses, to reduce the estate’s overall taxable income.

Subject to specific rules and reasonable expenses, funeral costs are considered legitimate estate tax deductions.

Executor’s Role in Funeral Arrangements

As the executor of an estate, one of your primary duties involves the payment of funeral expenses. An estate may benefit from claiming the maximum number of allowable tax deductions to reduce its net value, allowing you to manage the estate’s costs more efficiently.

You may also play an advisory role in planning the funeral. It’s important to be cautious while making too elaborate an arrangement, to avoid assuming the risk of personal liability. There are reasonable expenses allowed by the state court for reimbursement.

Funeral Costs That Quality For Reimbursement

The following funeral expenses generally qualify for estate tax deduction are:

  • Burial plot costs, including acquisition and maintenance
  • Holding religious observances, such as masses
  • General funeral expenses, including embalming and cremations
  • Casket, hearse, limousines, and floral arrangements are also tax-deductible
  • Transportation costs for the deceased as well as the person accompanying the body
  • Purchase of a gravestone, monument, or marker
  • Funeral meal

As an executor, you must ensure that an estate directly pays for these costs to qualify for a tax deduction. In cases where a family member or any other benefactor (like the Veterans Administration) covers funeral expenses, the estate stands to lose the deduction.

Certain additional expenses associated with the funeral are not deductible as expenses. For instance, family travel costs to attend the funeral are considered personal expenses. Furthermore, funeral expenses are never deductible for income tax purposes.

Considering the Decendent’s Wishes

Ownership of the decedent’s remains belongs to the next of kin. However, extravagant burials are not honored by common law. For example, a car manufacturing mogul may wish to be buried with their expensive car or in a gold or silver casket. Such practices could result in grave robbing.

While the decedent’s wishes are honored when it comes to body disposition, these wishes may not necessarily be binding. In the event of a dispute with the next of kin, the court has exclusive jurisdiction of the control of the decedent’s burial.

Executor’s Role in Filing For Tax Deduction

When an estate is large enough to be subjected to federal estate tax, the executor is responsible for preparing and filing IRS Form 706. Form 706 is used to compute the GST tax, and the executor of a decedent’s estate uses Form 706 to figure the estate tax imposed by the IRS.

The estate tax payment is due at the same time as the Form 706, therefore, the paperwork must be filed with the IRS within nine months of the decedent’s date of death. Estate tax returns can vary by State, so check with a tax professional or estate planning attorney.

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