Funeral costs if death benefit insurance is in place

Oct 30, 2025

The relatives of a deceased person are generally responsible for covering the funeral costs. Funeral insurance policies are becoming increasingly popular. Some insurance policies are designed in such a way that the future testator assigns the future claim for payment from the funeral insurance policy to the funeral home during their lifetime, which then pays the funeral costs directly to the funeral home. The invoice for the total funeral costs is then sent to the heirs or relatives.

The Federal Fiscal Court (BFH) had to rule on a case of this kind in which the funeral costs exceeded the tax-deductible lump sum for funeral expenses. Part of the invoice amount was paid directly by the funeral insurance to the funeral home, and the heirs paid the remaining amount.

In the inheritance tax assessment issued against the heirs, the tax office determined that the payment from the death benefit insurance belonged to the estate and did not recognize the actual funeral costs that exceeded the lump sum, but only the lump sum funeral allowance of €10,300. The heirs' appeal against the assessment and the lawsuit in the first instance at the tax court were unsuccessful for the heirs.

The Federal Fiscal Court agreed with the assessment of the tax office and the tax court that the insurance benefit was attributable to the estate, but ruled that the funeral costs were not only to be deducted from the estate in the amount of the lump sum for funeral expenses, but in full.

Since the tax court had not made sufficient findings as to whether all the funeral costs claimed by the heirs were actually to be regarded as such, the BFH referred the case back to the court of first instance for a new decision.

In comparable cases, the heirs concerned should seek advice from their tax advisor.

Source: BFH, judgment of July 10, 2024 - Ref. II R 31/21