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Pros and Cons of an Irrevocable Funeral Trust


An irrevocable funeral trust is a way of setting money aside to pay for your funeral and burial expenses. While an irrevocable funeral trust can help your loved ones pay for potentially expensive end-of-life costs, it locks up your money for good and cannot be amended.

A financial advisor with estate planning expertise can help guide you through the often complicated estate planning process.

What Is an Irrevocable Funeral Trust?

An irrevocable funeral trust is a legal entity that helps people save for their end-of-life costs, such as funeral and burial expenses. When you set up a funeral trust, you are establishing a formal trust fund, a separate legal entity that owns the money that you have contributed to it. The purpose of the trust is to hold your money until you die. It then releases the funds to pay for your funeral, burial and any other end-of-life expenses.

As with all trust funds, an irrevocable funeral trust has a trustee that manages its money. In this case, the trustee is determined by an insurance company or funeral services company through which you set up the trust. In most, if not all, cases the trust fund will hold as its single asset a life insurance policy that you have taken out. The trust fund owns this life insurance policy and is named as the sole beneficiary. When you die, the fund collects the policy’s payment and uses this money to pay for your end-of-life costs.

A funeral trust may also name a specific funeral home as the trust’s beneficiary. For example, a given funeral home may agree to a fixed price for a funeral and burial. When you die, the trust pays out its funds to the funeral home to cover the costs of your funeral, burial and any associated services.

As with most trusts, you can establish both revocable and irrevocable funeral trusts. With a revocable funeral trust, you maintain ownership and control of the money and can withdraw it at any time. With an irrevocable funeral trust, you no longer own the money so you can’t withdraw it.

Benefits of an Irrevocable Funeral Trust

Pros and Cons of an Irrevocable Funeral Trust

A funeral trust does have several benefits. Funeral and burial services can cost a lot of money but with a funeral trust, you can mitigate this problem in two ways.

First, you cover the costs yourself. Even if your will leaves behind money to pay for your funeral, that has to go through the probate process. Your heirs may still have to pay for your funeral upfront and hope to collect reimbursement from your will. With a funeral trust, these payments are handled automatically.

Second, you (or at least your heirs) can pay less. The trust pays for your funeral using the proceeds of its life insurance policy or other investments. This means that you may pay less upfront than you would otherwise.

The details of those costs range based on the individual trust fund. Some funeral trusts only cover basic services, such as a casket, burial or cremation. Others will pay for a full funeral ceremony, with any associated officiants, transportation and other costs. This can also make the planning process easier for your loved ones. If you set up a funeral trust that comes with specific, pre-arranged costs and services, all of those details will already be arranged when you die. Your loved ones will not have to go through the process of finding a funeral home and making arrangements. Those plans will already exist and will automatically go into motion.

The other major benefit to an irrevocable funeral trust is Medicaid eligibility. Since you no longer own these assets, they don’t count against your net worth when calculating Medicaid coverage and any other government benefits. This is only true for irrevocable trusts. The money in a revocable trust is still legally yours, so it counts against eligibility tests. It’s also important to note that Medicaid is administered at the state level, so the details will differ for every jurisdiction.

Disadvantages of an Irrevocable Funeral Trust

Pros and Cons of an Irrevocable Funeral Trust

There are some downsides to an irrevocable funeral trust though.

As with all irrevocable trusts, once this money is in the trust, it’s no longer under your control. This isn’t necessarily a bad thing, since unfortunately, we all must pay at least some burial costs. However, make certain that this is money you can comfortably part with. These can be expensive products, sometimes costing tens of thousands of dollars, so it’s important to make sure this won’t cause you any hardships.

In addition, if you set up a funeral trust with pre-arranged services, you should confirm these plans with your loved ones. Make sure that they will want the service and burial you have planned since this will be for their comfort. It can be a problem if they discover that you created a funeral plan that doesn’t allow them to properly mourn.

Finally, funeral trusts can have reliability issues. If you set up this trust with a funeral home that goes out of business or has financial issues, you can lose the money entirely. This can happen in a number of different ways, but the two most common are mismanagement (the funeral home makes bad investments with the trust) and business dissolution (you pre-purchased services from a funeral home that no longer exists). This is also a problem if you move later in life. In that case, you can find yourself stuck with funeral plans in a state or town on the other side of the country. These trusts aren’t always portable, which can also be a problem.

Bottom Line

An irrevocable funeral trust is a legal entity that lets you save for your end-of-life costs. It can be a good way to make arrangements for your burial, but make sure you have the flexibility that you need since irrevocable trusts cannot be changed once they go into effect.

Estate Planning Tips

  • A financial advisor with estate planning expertise can help you set up trusts and make a plan for your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Giving away assets while you’re still alive to the people and causes you care about can lower your estate’s future tax liability. For example, the annual gift tax exemption allows you to gift up to $17,000 to one person tax-free, in any given year. Meanwhile, you’re permitted to give away up to $12.92 million over the course of your lifetime without it affecting your tax liability.

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