Burial Trusts: What are they, and how can they help ease end-of-life expenses?
Funeral Trusts allow you to set aside funds for funeral and burial services in a legally binding financial arrangement. Designed to pre-plan both burial services and expenses, Burial Trusts can relieve loved ones of emotional and financial burdens while mourning.
Understanding Burial Trusts
Funeral Trusts can provide peace of mind for your loved ones, and offer you an opportunity to financially plan and ensure assets are set aside for funeral expenses. There are four types of common Funeral Trusts in which you, as the grantor, can prepare for funeral needs.
Preneed Funeral Trusts
A Preneed Funeral Trust is typically set up with a specific funeral home. Within the contract, you select and lay out the details for funeral and burial services. The funeral home or provider holds the trust until the funds are needed. Depending upon the predetermined contract, preneed Funeral Trusts are either revocable or irrevocable.
Revocable Funeral Trusts
The conditions and funds in a Revocable Funeral Trust can be changed, amended, or the whole trust can be dissolved by the grantor.
Funds within a Revocable Trust are considered part of the grantor’s state, both for Medicaid and tax purposes.
Irrevocable Funeral Trusts
Also known as an Irrevocable Burial Trust, an Irrevocable Funeral Trust ensures funds are exclusively used for funeral and burial costs. Once a grantor establishes an Irrevocable Funeral Trust, funds cannot be accessed and conditions cannot be changed.
Up to individual state Medicaid limits, funds within an Irrevocable Funeral Trust are not considered part of the grantor’s estate, and are not taken into account for Medicaid or tax purposes. These funds are also protected from creditors.
Totten Trusts
A Totten trust, also known as a Payable-On-Death bank account, becomes accessible to a beneficiary upon the death of the grantor. Totten trusts can be set up at most banks.
Although not a traditional funeral trust, Totten Trusts permit a grantor to easily set aside funds for funeral and burial costs.
Benefits for Financial Peace of Mind
While money cannot buy peace, Burial Trusts allow you the space to plan and prepare for funeral services separate from mourning death. A few benefits in financially planning for this event include:
Price security: Many burial trusts ensure a price for services, regardless of future inflation.
Predefined arrangements: Allows you the freedom to tailor your needs and wishes, preventing potential disagreement between loved ones.
Regulated, professional guidance: With state and federal oversight, financial planners can help you make informed choices.
Tax benefits: Interest can be earned on funeral trusts and is often tax-free.
Prompt liquidation: Designed explicitly for funeral needs, funds will be promptly available when needed.
Common Misconceptions and Clarifications
Although Funeral Trusts provide many benefits, the investment should not be taken lightly. Some misconceptions include:
Misunderstanding: The fine print of a Funeral Trust contract is often complex, which can end in unforeseen outcomes. Be sure you are carefully informed on terms and conditions of your Trust.
Lost investment opportunity: Funds allocated to a burial trust could yield higher returns in other investments. Does the benefit of a Funeral Trust and plan outweigh the cost for you?
Business Risk: If your designated funeral home goes out of business, the process of refunding or transferring funds to another business can be complex. What terms and conditions does your Funeral Trust provide if the business closes its doors?
Legal Implications: Tax and regulatory laws on Funeral Trusts vary state by state. If your state residence changes, the Funeral Trust may be subject to fees.
Planning that Provides Peace of Mind
Burial Trusts allow you to secure your financial legacy and ease end-of-life expenses. According to the National Funeral Directors Association, the average funeral costs between $6,971 and $7,848.
By setting up a Burial Trust, you will be able to mitigate end of life stress for your loved ones. Contact our experts or book an appointment today to walk through your options so you can make an informed choice.
