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The benefits and drawbacks of funeral trusts

End-of-life arrangements can be stressful and complicated, especially if you lack a strategy when the time comes. Establishing a funeral trust can mitigate some of the pressure by creating important plans in advance of time, including securing a plot for a cremation service, and determining how assets will be distributed. There are benefits and drawbacks to these arrangements, it’s worth thinking about what will be most beneficial for you. The team of insurance experts at Bankrate discuss the ins and outs of funeral trusts.

What is the definition of funeral trust?

It may facilitate the consideration of trusts regarding funerals like a savings account for funerals. The trust in death is a formal association between three parties that takes effect on the funeral.

  1. The trustor: This is the individual who instills faith in the funeral tradition. Other times, they are also referred to as the grantor or settlor.
  2. The trustee: This is the financial institution, trust company or mortuary that administrates the funeral trust.
  3. The beneficiary: This is the funeral home that will take advantage of the funeral trust.

The objective of these trusts is to arrange prepaid funeral plans and prepay for costs. This money is deposited in a trust that will last until the trustor passes away, at which point the trust will be paid out to the designated funeral home.

Two varieties of funeral trusts: revocable and irrevocable. The distinction between them is whether or not you can alter your mind and d’annul the plan. If you establish a trust that cannot be rescinded, you transfer control of your assets to the trust account and have them managed by a trustee. You cannot annul the contract or take back your benefits. With a irrevocable trust, the assets are held until your beneficiaries receive the benefits after your death.

On the other hand, if you create a revocable funeral trust, you still have control over your assets, and you can typically make alterations to the terms of your contract, including destroying the contract and taking most of your assets. However, there may be costs associated with the dissolution of a revocable funeral trust.

What is covered by a funeral trust?

What is covered by a funeral trust?

Funerals are costly, and there are multiple expenses to pay. Several general areas of spending should be considered during the planning of a funeral. Depending on the funeral home and the type of burial arrangement, any of these costs could be attributed to the funeral home:

  • A casket, mortuary’s office, burial ground or crematorio
  • Entombing or cremation methods
  • Clothing, showmanship and preparation for burial and viewing.
  • Transport and ceremonial services
  • The cost of an obituary and a death’s certificate is €1,500.00.
  • Venue, food, flowers and other specific details associated with the event.
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The advantages of funeral trusts

Celebrant funerals may have multiple benefits. Understanding the benefits will assist you in making an informed decision if you’re thinking of taking this type of trust.

Executioner’s flexibility

A trust that allows for any relative, other individuals, organizations or mortuaries to participate in funeral ceremonies, if desired. This implies that, if you create a funeral trust, you can place anyone in charge, provided they agree. This may facilitate the involvement of a non-family member or more distant relative in the planning of funerals.

The eligibility of Medicaid benefits.

One benefit of an irrevocable funeral trust (or an irrevocable burial trust) is that they are excluded from the count of assets in order to determine if you are eligible for Medicaid funding. Assets incorporated into a trust that is revocable have an effect on the process of qualifying for Medicaid funding. If you’re near the end of your Medicaid eligibility, an irrevocable trust is more likely to be appropriate than a revocable one.

However, different states have different regulations regarding trusts and the eligibility of Medicaid. For instance, many states have rules regarding the maximum amount of money that can be put into the trust as well as the recent time period in which it was created.

Lower the cost of funeral expenses for family members.

A funeral trust funds your final arrangements and plans them according to your preferences, but it could also help you to save money. With a trust, the funeral expenses are paid for at the current rate instead of the deceased’s rate of death. Because the costs associated with funerals tend to increase over time, this may benefit you and your family by saving money.

Plan the funeral procedure’s ease

Other than the financial comfort, a funeral trust can also reduce the stress associated with your loved ones by planning every specific detail ahead. For example, the method of burial or cremation, the attire worn during funerals, the number of viewing hours, and more can all be predetermined when the funeral trust is instated. This may alleviate the physical burden on your loved ones while still ensuring that your final wishes regarding burial are still achieved.

Advantages and disadvantages of funeral trusts

While funeral trusts can be utilized as a financial and logistical resource, there are potential problems associated with them. A comprehensive analysis of the benefits and drawbacks of funeral trusts can assist in your decision regarding whether or not to create one.

The potential loss of or inability to access funds is a risk.

If a prepaid funeral trust is purchased from a private funeral home, the homeowner may subsequently go into bankruptcy or have poor management of the funds, the money associated with this prepaid trust will be permanently lost. Also, funeral trusts may not be transferred between states. If you have a funeral trust in one state, but live in another state during your death, the money may not be transferred to the funeral home.

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The implications of Medicaid and taxes are discussed below.

While an irrevocable trust doesn’t have an effect on Medicaid eligibility because the assets are not considered part of the qualification process, a revocable funeral trust can negatively affect your eligibility for Medicaid and is subject to the spend-down rules of Medicaid. Even with a formal funeral trust that cannot be rescinded, there are limitations to the amount of money that can be excluded in the determination of whether or not someone is eligible for Medicaid.

The interest income from a trust account for funerals is taxable and must be reported on both federal and state tax returns, additionally, it is also reported on the trust’s tax return.

Celebrant funerals are uncommon in the market.

Despite the potential benefits of these trusts, they are less frequently utilized than other funeral planning methods. While this may not diminish their importance, it may facilitate the acquisition of information about them more difficult. On the whole, information regarding the management of funeral trusts and the rights of beneficiaries is less accessible, these types of arrangements have less defined rules than other types.

How to create a funeral trust

How to create a funeral trust

When you speak to a funeral home that specializes in these types of trusts, they will instruct you on the process. It’s typically followed by discussions of how you’d like to be buried or cremated, if you want to see arrangements, how you want your funeral to be structured, what your obituary should be and any other specifics pertaining to your final planning. While the procedure is slow and intricate, it’s primarily straightforward. Before closing the funeral trust, you must pay.

Advice on establishing a funeral trust

Research regulations regarding relocation: Before your trust can be opened, it’s beneficial to confirm that it can be transferred to a new state if you move. If you travel across national borders, be sure to alter the beneficiary and trustee to the new funeral home you will employ.

  • Select a respected provider of funeral services: Online reviews or bocao reviews may assist you in finding a reputable funeral service provider. This step may facilitate the administration of your funeral trust to accomplish the services that were agreed upon after your passing.
  • Figure out how much your funeral budget is likely to be: You can compare the maximum limit of your state on funeral trusts with the estimated cost of your funeral. The funeral home that you choose should have the capacity to assist you in estimating the expense of your burial or cremation and services.
  • Contrast the various methods of funding a prepaid funeral debt: Cash, bonds that are payable in cash, CDs, payment plans, or final expense insurance (burial insurance) can be employed to fund a prepaid debt.
  • Ensure that the proceeds from the trust will be sanctioned: The majority of funeral trust specialists recommend double checking that the chosen funeral home will accept the funds from the trust as compensation for the services provided.
  • Consider hiring an attorney: An elderly law attorney can assist consumers in comprehending the legalities and tax consequences of funeral trusts.
  • Ensure that loved ones are aware of your intentions: It’s possible that this would be beneficial to share a copy of the trust with your executor and all of your heirs, as well as provide them with your contact information and information regarding the funeral home and beneficiary.
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Other options than traditional funerals

Despite the potential benefits of funeral trusts, if you’re unsure, you may want to explore these alternative options:

On death’s payable account

Money can be put towards a bank or credit union account in order to pay for the funeral expenses. The account owner can designate at least one beneficiary (and trustee). You still have control over the money, but the beneficiaries can take control of the funds and pay for the funeral expenses after you pass away.

Last expense insurance or cremation insurance

Burial insurance is a type of whole life insurance that can be purchased from a company that specializes in insurance to pay for funeral costs. Beneficiaries can utilize the funds to pay for the funeral expenses and other final life expenses. Comparing quotes from various companies or having a licensed insurance agent speak to you may help you find a policy that meets your needs.

Saving account

Another option is to create a savings account dedicated to funeral costs. You can deposit funds to have enough money to pay for the funeral expenses, burial costs and services. Extra money can assist your family in paying for additional, unexpected costs, and dealing with inflation. You may want to consider making a designated beneficiary that can take immediate action to finance your funeral.



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