Component Funds to Support Charitable Activities of Cemeteries

By Christopher R. Hoyt, Professor of Law
University of Missouri-Kansas City
School of Law

The Saint Paul Foundation appears to have solved a tricky legal issue concerning charitable grants to cemeteries. Although a community foundation usually cannot establish a designated fund for a cemetery company, the Saint Paul Foundation realized that it could establish a field of interest fund that supports the charitable activities (but not the non-charitable activities) of cemeteries in the Saint Paul area. Individuals and private foundations who contribute to the fund qualify for charitable tax benefits that are not available for direct contributions to a cemetery company.

By way of background, most cemetery companies are not charities under Section 501(c)(3), but are tax-exempt under a different section: Section 501(c)(13). Although a special statute makes a gift to a cemetery company eligible for an income tax charitable deduction, such a gift is not eligible for an estate tax deduction (see Rev. Rul. 77-385, 1977-2 C.B. 331 and Child v. U.S., 540 F.2d 579 (2d Cir. 1976)). Similarly, the IRS has taken a firm position that a private foundation cannot make a grant to a cemetery company without exercising "expenditure responsibility." Rev. rul. 80-97, 1980-1 C.B. 257. The same result will occur if an earmarked grant is made indirectly through another charity (such as a community foundation). Treas. Reg. Sections 53.4942(a)-3(a)(3) and 53.4945-5(a)(6).

This has hindered the ability of cemeteries to attract charitable bequests or grants from private foundations. In addition, cemetery companies cannot establish designated funds at community foundations, because a designated fund can only support a public charity and a Section 501(c)(13) cemetery company is not eligible to be a public charity. See Treas. Reg. Sections 1.507-2(a)(8)(iii)(B) and 2(a)(8)(iv)(A)(1).

The way that the Saint Paul Foundation solved the problem was to establish a field-of-interest fund that was restricted to the charitable aspects of cemeteries. A field-of-interest fund can make grants to organizations that are not Section 501(c)(3) charities as long as the grants are for a charitable purpose (for example, a scholarship grant can be paid to an individual rather than to a school). Cemeteries engage in several activities that can be considered charitable. For example, they can beautify a community and can educate the public about community history.

The Saint Paul Foundation established the "Community Cemetery Preservation Fund" in 1982. It obtained a legal opinion that the fund's purposes were charitable and even had the IRS review the fund. Contributions to the fund qualify for income and estate tax charitable deductions and are also exempt from the private foundation excise taxes because of the Saint Paul Foundation's public charity tax status and its control over grants.

Any community foundation that attempts to establish a similar cemetery fund will have to monitor distributions to be certain that grants are used only for charitable activities. The fund cannot provide an endowment for the general administrative expenses of a cemetery company since it is not a public charity. However, grants can be made for particular charitable projects, such as replacing deteriorating headstones and improving public areas of the cemetery.

Community foundations that are interested in establishing funds for cemeteries in their communities might consider adopting the same provisions that are used by the Saint Paul Foundation. The Board of Directors of the Saint Paul Foundation adopted resolutions that limit the use of the assets in the Community Cemetery Preservation Fund to the following purposes:

1. "to provide for the maintenance, repair and restoration of monuments, headstones and grave markers of historical or architectural significance to the community, thus promoting an appreciation of community history to the educational benefit of the general public;"



2. "to provide funds for the preservation, beautification and maintenance of abandoned or deteriorating graves of deceased persons and cemeteries generally, focusing on areas open to the public or to the public's view and for the care and replacement of trees, flowers, shrubbery and lawns, including removal and replacement of diseased trees, thereby contributing to the aesthetic enjoyment of the community and combating deterioration;" and



3. "to provide for the maintenance of semipublic areas whose maintenance would otherwise devolve upon government, thereby lessening the burdens of the government."

The Saint Paul Foundation has successfully supervised the Community Cemetery Preservation Fund since 1982. If a community foundation is willing to take on the burdens of administering and monitoring a similar fund that is restricted exclusively to the charitable aspects of cemeteries, donors should be eligible to contributions to the fund and private foundation grants made to them should be exempt from expenditure responsibility requirements.

Of course, donors must understand that such contributions are for general charitable purposes. Donors cannot claim tax deductions for amounts paid to maintain a specific lot or crypt, since such expenditures would not be for a public purpose. Rev. Rul. 69-256, 1969-1 C.B. and Rev. Rul. 58-190, 1958-1 C.B. 15.