So, part of what sets aside gnomes in D&D is their propensity for pranks and levity. Halflings are cheery (or shady), dwarves are jovial (or dour), elves are bemused (or distant), but part of gnomish identity is tied up in trickery, pranks, and jabs.
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In fleshing out a little something I'm working on, I've come to wonder: how do these fun-loving folks process death and tragedy?ENWorld is a great place to harvest ideas, typically. So what's yours?
In a highly magical setting, people have abundant knowledge of an afterlife and in some cases are reasonable opportunity to communicate with relatives that have passed on. As such, even more than in this world, the residents of a highly magical world mourn for themselves and not (necessarily) those that have passed on.
a) In general, the main purpose of a funeral is to ensure that the departed soul gets a good start on their journey in the afterlife. You don't want your relative to end up a ghost or some other sort of undead. You don't want your relative to experience distress that confuses and disorients them further. Dying can be potentially traumatic. So you hold wakes primarily to honor the dead, not to mourn them. To the extent that you mourn, you also avow that you hope the relative passes on. You hold religious wakes in particular in the hope of bringing the newly departed soul together with a servitor of the deity that can help guide them to a better place.
I would imagine gnomish funerals involve recounting the jokes and tricks that a person played on you, celebrating the person's good humor, wit, and friendship. The gnomes friends might recount their epic jape fights, and how their friend was always one upping them and getting the better of them. Wine and food are consumed, and the body is properly interred with many well wishes for their journey.
If the death was violent or tragic, this purpose becomes immensely important. Specialist mediums or priests might exist to help in such situations depending on how much magic you have available.
b) The secondary purpose of a funeral is to perform whatever rites are needed to defend the community from necromancy. That means laying curses on whoever disturbs the body, sealing the body with positive energy to prevent it from being animated as undead, and putting the body in a position that it won't leak negative energy pollution over the surrounding area. Different societies have different ways to do that. Some recycle the bodies by ensuring that the are respectfully eaten by helpful animal spirits (life from death). Some seal the bodies underground in specially prepared plots or tombs. Some burn the bodies outside the community (often near or on water) to ensure that the body is returned to sterile dust and ash. Each variant has its pros and cons. I honestly have never given much thought to the matter of gnomish burial, but at a gut level I don't think they'd go in much for elaborate tombs. Like elves, they are much in touch with nature and I think would go for more natural burial and recycling. Sky burial is a possibility. It might be that the Gnomes, being tricksters, have a relationship with trickster spirits like Raven and Coyote who are responsible for respectfully (and gratefully) disposing of their dead's now discarded body.
If the departed is a blackguard or knave, then this secondary purpose is elevated to the primary one.
c) The tertiary purpose of a funeral is to comfort those that are left behind. Celebrating the departed is a big part of that, but it's worth noting that direct communication with the departed might be possible. One of the advantages of tombs or markers is that they constitute shrines where you have a better than normal chance of communication with the departed. I don't think that gnomes would hold this of the highest priority, but I can definitely see gnomes going in for day of the dead type ceremonies where ancestral spirits returned to the community - probably to play practical jokes on them. On a larger level, I imagine that they maintain icons of ancestors in their private shrines in their homes, and pray/communicate with heroic/admired/beloved ancestors as well as gods. The ancestors then act as intermediaries when the deities wish to intervene, and depending on the power of the ancestor might be able to intervene themselves. Particularly important heroes might have statues erected to them in gnomish burial locations, to act as shrines and to encourage the heroes to protect the burial location and perhaps the souls of those buried their. (Of course, as I said, sky burial seems more likely to me, though gnomish undertakers might come along later to shallow bury those remains, chiefly bones, which could not be easily consumed.)