What is a Funeral Trust?

Did you know that over the last 30 years, funeral costs have risen by more than 200 percent in the United States?

According to the National Funeral Directors Association, the median cost for a funeral was $7,360. That price doesn’t include a vault; a vault will cost an additional $1,000. And guess what? There are more hidden costs. The $8,000 doesn’t include the cost of the actual burial plot/site, the headstone or the announcement in the newspaper! Those are extra costs!

So when everything is said and done, the price tag for a basic funeral increased to more than $10,000!

There is one big looming question: who’s going to pay for it?

There may be an old insurance policy that was intended to pay for it, but that money is weeks or months away from arriving. It doesn’t help the situation when the funeral home is asking for money now.

If Mom, Dad or Uncle Joe didn’t have the forethought to make arrangements years ago, it’s not unusual for families to scramble to find the money, making an emotional situation that much worse. To lessen these financial burdens for your loved ones, you might find it helpful to prepay or pay for your funeral in advance. And one way to prepay your costs is by setting up a funeral trust.

The technical term is called an irrevocable funeral trust, or for simple terms, a funeral trust. It is a type of trust used in estate planning to set aside funds to pay the cost of final arrangements, such as funeral services, cremation and burial.

You establish a funeral trust by purchasing a policy from a third-party insurance company whose sole job is to manage and oversee funeral trusts. At time of death, the family calls the insurance company’s customer service line and gives a policy number that was issued when the trust was established, and within 2 business days, a check is sent to the funeral home of your choice. A few weeks later, after some paperwork is submitted, the remaining money (with the interest figured in) is returned to the family.

What expenses can be paid with a funeral trust? Funds in a funeral trust can cover a wide variety of final expenses. The purchases of a casket or a vault are the obvious expenses covered by the trust. The trust also can cover:

* Funeral home services

* Headstone

* Obituary notices

* Death certificates

* Travel expenses for out-of-town relatives

* Memorial following the funeral

The process also works if your loved one wants to be cremated or have his or her body donated to science.

If you’re in good health, purchasing a funeral trust is just a great example of preplanning. It’s a matter the family won’t have to worry about.

If you’re concerned that funds in your estate may not be immediately available to pay your funeral and burial, due to probate or a will dispute, a funeral trust is the way to address that concern. One of the advantages of this type of trust is that the funds you set aside should be available within a few hours or days. This means your funeral service can proceed as planned, even if your estate has to go through probate.

Years from now, when your health has changed for the worst and you need to qualify for Medicaid to pay the costs of nursing home care, a funeral trust is one way to set aside money for your last wishes without having those funds counted as an asset when determining your eligibility for such assistance.

One of the pluses to having a funeral trust is, you’re not committed to using a funeral trust at a specific funeral home or location. The family-owned, neighborhood funeral home which handled all of your relatives’ services may or may not still be in existence today. That’s not a problem with a funeral trust. Your brother in Wyoming can contact the funeral trust company in Ohio, for example, and have the money sent to a funeral home in Florida. It’s that flexible.

One of the most common questions about funeral trusts is whether you can get your money back from this type of trust or whether money in a funeral trust account can be refunded. Many funeral trusts are set up as irrevocable, so the assets do not count as an asset for Medicaid eligibility. So no, there are no refunds or cancellations.

Your loved one may have prepaid their funeral more than 10 years ago. A commonly asked question is, can’t I just add money to the original trust? Must I create a second trust? Yes. Enough time has passed from when the original contract was signed. A second trust will ensure there is enough money to cover all costs, and again, whatever remains after all the bills are paid goes to the family.

Who’s going to benefit from all this? The family. They won’t have to worry about scraping money together to pay for Mom’s funeral, plus Mom and Dad, or whoever has the funeral trust, is able to pass money on to the family, which is the ultimate goal, right? This is one way for their legacy to be passed on to the family.

If you want more information or are interested in establishing a funeral trust, contact Elder Advisers are (800) 763-7930.

Elder Advisers® is not a law firm or a substitute for an attorney. We offer financial advice. We can work closely with your existing tax and legal advisors or introduce you to those we routinely work with. Nothing in this newsletter is intended as tax advice, a solicitation for insurance, or legal advice, and is merely provided as general information, and should not be relied upon for anyone’s specific or unique circumstances. Some content of this newsletter may have been developed by third party sources not affiliated with Elder Advisers®. If you would like to discuss your situation, we are delighted to help. CALL (800) 763-7930.