The IRS defines a funeral trusthttps://goldguytrusts.com/estate-planning/ as "a pooled income fund set up by a funeral home/cemetery to which a person transfers property to cover future funeral and burial costs.”
Funeral trusts are typically set up between three parties: a bank that holds the assets in the trust, you (the grantor) and the funeral home that will receive the funds to cover the cost of the funeral after your death.
Yahoo Life’s recent article entitled “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?” explains that there are two types of funeral trusts: revocable and irrevocable.
Each type has benefits and drawbacks. The drawback to a trust in many cases is that if you die, and the funeral home isn't paid in full, or you haven't put in enough to cover your funeral expenses and the amount that's currently in the trust is all that you will have—and your family will be responsible for the difference. An advantage of trusts is that, in some states, they can be used primarily for people who aren't insurable because of extreme health conditions, old age, or imminent death.
If you set up a revocable funeral trust, then you retain control of your assets and can make changes to your terms, including dissolving the contract and getting most of your prepaid funds back.
Funerals can be quite expensive and are often an unexpected expense for which grieving families are not fully prepared. A funeral trust can help families pay for these expenses, which may include:
While discussing your death and end-of-life planning with your loved ones isn’t easy, the benefit of knowing that you've eased the emotional and financial burden that funeral planning can entail in times of grief is worth it.
Reference: Yahoo Life (Feb. 17, 2022) “Should You Pre-Pay for Your Own Funeral as Part of Estate Planning?”