Crowdfunding Funerals: What You Need to Know

Article By Kayleigh Kulp, Fox Business

When death occurs suddenly, it can leave loved ones in a lurch to figure out how to pay for funeral and the related services.

To help cover the cost of a funeral, the median of which exceeds $7,000, according to the National Funeral Directors Association, families are increasingly soliciting donations from crowdfunding websites.

Crowdfunding allows users to seek small donations from people online for various ventures and causes. The capital-raising technique became popular in the wake of the Great Recession when credit markets froze, and has grown to a $5.1 billion market.

On crowdfunding platform GoFundMe.com, there are more than 22,000 open funeral, tribute and memorial campaigns, which have collectively raised $40 million to date. The average funeral campaign raises about $2,200 with an average individual donation amount of $65.

“Inviting the support of your friends and family during difficult times in your life is a natural response,” explains Kelsea Little, a GoFundMe marketing associate.

Other sites are experiencing similar surges in funeral fundraising.YouCaring.com has more than 30,000 open funeral-related campaigns at the moment, which have at least doubled in the past year, with the average campaign raising around $2,000, according to website spokesperson Michael Blasco.

A spokeswoman for Indiegogo.com said the crowdfunding site did not maintain specific data on funeral-related campaigns, but that funds for cause-related, as opposed to entrepreneurial, campaigns have increased by 50% in the past year.

Little from GoFundMe says the most successful campaigns include a bright colorful photo of the beneficiary, a clear and concise description that gives information about the organizer, why the money is being raised and how it will be spent. It should also include verification of the poster’s identity through a social media account, she adds.

Blasco also suggests taking a very active role in the process. “Be humble and honest, and don’t be afraid to tell those around you what you have going on.”

Organizers should clearly detail why financial assistance is needed, provide regular goal updates and information on how excess funds will be used. Campaign owners are legally bound, by the laws of their individual states or countries, to fulfill promises they make during their campaign, but it is the responsibility of contributors to do due diligence before making a donation.

“The most important rule of crowdfunding is to always be as transparent as possible. Transparent campaigns keep the fundraising process smoother for everyone involved,” Little says.

Sharing a story personalizes a campaign. On Indiegogo, two daughters raised more than $32,000 to pay for their mother’s funeral costs after she died of spinal and brain cancer with a campaign titled “Goodbye Beautiful Mummy.” The “Rick and Kelly Schwab Memorial Fund” recently raised more than $23,000 on YouCaring.com to pay for the funerals of a couple killed on their motorcycle by an alleged drunk driver on July 4, leaving a 14 year-old son behind.

Those thinking about starting a crowdfunding campaign for funeral expenses should consider the costs and recordkeeping requirements. Many sites charge credit-card payment processing fees and commissions that add up to 10% of the total amount donated.

If a campaigner raises more than $20,000 or has more than 200 contributions, the payment processor is required to send the promoter a 1099-K to make sure the money is reported to the IRS as taxable income. However, this process gets complicated since funeral and related expenses are exempted from taxation, says Gardner Osborne, an enrolled agent and tax expert for Gardner Tax and Financial in San Diego. Campaigners should report this income so that it matches IRS records, but should either explain or have their tax professional write an explanation for why it is not taxable on the return.

“If your intent is just a civic or a personal endeavor, and is not for profit, then [donors] are really just giving you a gift,” he says.

That means donors do not receive any tax benefits unless the beneficiary is a nonprofit. Nonprofits that use YouCaring, for example, must use a designated system for documenting donors for tax purposes. The nonprofit must then send the donor reporting documentation.

But most donors aren’t motivated for tax reasons, says Blasco.  “They see a hardship that they or someone close to them is or has gone through. They feel compelled to help.”