The Internal Revenue Service defines a funeral trust as “a ‘pooled income fund’ set up by a funeral home or cemetery to which a person transfers property to cover future funeral and burial costs.” Funeral trusts allow people to pay funeral expenses in advance. With this kind of trust, you set aside a sum for your funeral and burial costs and leave your family with peace of mind about the future.

A Gift For Your Loved Ones

A funeral trust is an agreement that your assets placed in trust with a funeral home are for your future funeral needs. This arrangement is beneficial for you and your loved ones. 

A paid preneed contract with a funeral home gives you the time to decide about burial or cremation services and types of memorial or funeral services. A preneed contract also lets you consider how you want others to remember you – with flowers or charities you loved, music, bulletins, obituaries, and speakers. 

Making these kinds of decisions now gives your family time to rest and grieve your loss instead of making harried decisions. They are not left wondering if you would have approved. 

Choose Well

Make sure to choose a reputable funeral home if you decide to fund a funeral trust. The Funeral Rule requires funeral directors to provide price information on the phone to any caller who asks for it. Most funeral homes also have a website with extensive information about their services.

If you’re looking for a local neighborhood funeral home, ask if the funeral home is independent and locally owned. Once you’ve done a bit of research, visit a home in person and expect the funeral provider to give you a general price list. This list itemizes the cost of the items and services and often includes specific prices for caskets or outer burial containers. If it does not, the law requires them to show you prices for caskets and burial containers before you see them.

If you move away from where you establish a funeral trust, the funds are held ITF(In Trust For) the Funeral Home of your choice. Preneed funeral trusts and insurance are portable in North Carolina. The funds DO NOT go to the Funeral Home. The Funeral Home simply conveys the funds, if a trust, or establishes the Insurance Policy for the family. The funds are registered with the state Board of Funeral Service. You can place them in a revocable or irrevocable state.  

Qualify for Medicaid

With a funeral trust, you can “spend down” excess assets to qualify for Medicaid care without violating the look-back period. Many seniors open trusts before the 5-year look-back period so that Medicaid does not count them as assets (for penalties or ineligibility). 

However, North Carolina does not count the expense of an irrevocable funeral trust against you during the 5-year look-back period. You can spend down your assets on a funeral trust and still qualify for Medicaid benefits. These benefits may cover home care, nursing care, or long-term care. 

During the 5-year look-back period, assets used to purchase an irrevocable burial contract are an allowable transfer when:

  • Purchased for your benefit, or the benefit of your spouse, your child under the age of 21, or your blind or disabled child of any age
  • The contract lists each burial item and/or service which may include many different necessary services.

Funeral contracts often include these services and more to choose from:

  • Basic Services – Funeral
  • Director, Staff, Overhead 
  • Embalming 
  • Other Preparation of Body
  • Viewing
  • Funeral Ceremony 
  • Memorial Service 
  • Graveside Service 
  • Transfer of Remains to Funeral Home 
  • Hearse 
  • Limousine/Family Car 
  • Immediate Burial 
  • Direct Cremation  

Creating a trust with a funeral home in your area can help you spend down assets and also qualify for Medicaid while giving your family peace of mind about your future plans.

Funeral Trusts and Taxes

When you pay for your preneed contract with a funeral home, you often establish a funeral trust. However, some trusts considered by the IRS as qualified may be taxed. A QFT (qualified funeral trust) arises out of a contract with a funeral or burial business. The trustee files Form 1041-QFT to report the income, deductions, gains, losses, and tax liability of the QFT. 

Pre-need funeral trusts that don’t qualify as QFTs will look at Form 1041 for filing requirements. For advice concerning the IRS and filing requirements please contact your Accountant.

Establishing a Funeral Trust

When you decide on a reputable funeral home, the director can guide you in making decisions that fit your budget and desires for the future. Making these decisions now can spare survivors many difficult decisions later and help give you peace of mind about the future. When working with a funeral director you trust, seemingly complex plans can become easier to handle. Because funeral directors work with making decisions like this daily, they understand what choices you need to make and the factors behind every decision in the planning process. 

We Can Help

At Renaissance Funeral Home, we are locally owned and run. Our funeral directors walk with you through the process of establishing your future plans. Whether you’d like to make a preneed contract or just start the process of planning, we are here for you. Our home offers many kinds of services. We care about your faith and culture and understand that your traditions are important to you and your loved ones. Contact us today and find out how we can help you.