Funeral trusts are accounts created for the purpose of paying for future funeral expenses. Like life insurance policies, they help protect against future costs. Funeral trusts can be helpful for estate planning and also relieve the financial burden left to survivors.
Special funeral trusts called "Qualified Irrevocable Trusts", can also help streamline the estate of an elderly or infirm person. Set up correctly, irrevocable funeral trusts allow for state support while preserving funds for funeral expenses. Some of the different types of trusts are:
Revocable Funeral Trusts
Revocable funeral trusts are the simplest kind of trust. They are basically a savings account established to pay for funeral expenses. The money is set aside to pay for future funeral expenses. These trusts gain interest, and can be cashed out at any time. They are not however exempt from claims against the estate. They are very much like a savings account at a bank.
(Qualified) Irrevocable Funeral Trusts
(Qualified) irrevocable funeral trusts are similar to revocable funeral trusts except that the money is basically non-refundable except for extenuating circumstances. The funds must be used for funeral expenses. While this limitation sounds like a disadvantage, it can be very useful: The money in an irrevocable trust is moved to an account that is stewarded by the funeral home and trust holding company. It is no longer part of the person's assets. This means that claims against the person or their estate can't touch the trust money.
This is especially useful if the person has assets and is trying to qualify for Medicaid support. In order to qualify for Medicaid 7 Title 19 support the person must spend down their own assets first. Done properly, a funeral trust can help the person reduce their assets to qualify for Medicaid faster and leaves them with a paid funeral as well.
Most elder care professionals are aware of the basic Title-19 guidelines for establishing qualified irrevocable funeral trusts up to the limit of $5,400 (in Connecticut). What many are not aware of is that additional money can be protected with another form called a Burial Space Itemization.
A burial space itemization form is an amendment which allows an additional, unlimited, amount of money to protected. This money is over and above the $5,400 base amount allowed in the initial irrevocable trust. The burial space itemization clause is a little-known benefit because it is an obscure bill with the force of law that was grandfathered into the legislation.
Insurance Funded Qualified Trusts
Insurance funded qualified trusts are relatively new. They can be set up as either revocable or irrevocable. The advantages of insurance funded trusts are that they generally pay higher interest and can also sometimes be leveraged like an insurance policy to "insure" against premature death while you continue to fund the account with regular payments.
Life Insurance Policies
While not actually funeral trusts, life insurance policies can also be set up with the intended purpose of paying for the funeral costs. Small policies can be taken out even by elderly or ill persons to pay for part or all of the funeral costs. If the person is not in good health, often the premium is close to the full costs of the benefit, but unlike a savings account, interest is not taxed. Also, if the person is in good health or younger, they may only pay a small premium for larger coverage.
At Collins Funeral home, we have a Certified Preplanning Consultant on staff that can help you to decide which plan works best for your own needs.
Please call us any time at (203)866-0747 to contact us with any questions about funeral trusts.