The Difference Between Prepaid Funerals and Funeral Trusts

A common question asked by individuals who receives public benefits that are based on limited resources and incomes, such as Medicaid, is whether they are allowed to own a burial space and have a burial reserve.  The good news is, these assets are not countable, so they will not disqualify you for public benefits.  Now, being familiar with the differences between prepaid funerals and funeral trusts, will help you determine which option is best for you and your family.

What is a burial reserve?

A burial reserve is simply funds or resources put aside to cover burial or funeral expenses.  Again, a burial reserve is not counted by Medicaid in determining eligibility for benefits.  A burial reserve can take many forms.  The most common are pre-paid funerals and irrevocable funeral trusts. A burial reserve will typically cover a burial space (conventional grave site, a mausoleum, urn or other repository) and any other arrangements that need to be made, such as funeral costs.

How does a pre-paid funeral work?

A prepaid funeral is merely a contract with the funeral home of your choice, where you pay in advance for your funeral services.  The services can be paid for with cash, insurance proceeds or an investment you may own. It is important to select a reputable funeral home, which will likely be in business in the future.  Funeral homes offer different “packages” of goods and services for you to choose from, and they usually include a funeral, burial or cremation.  In most cases, a burial plot must be purchased separately.  Prepaid burial plots are not transferable, so if you later choose a different cemetery, you must purchase another plot.

How is an irrevocable funeral trust different?

An irrevocable funeral trust is a special type of trust created to cover any final expenses.  Many insurance companies provide a single premium life insurance policy, to be placed in trust until you pass away.  There are tax benefits because the funds are owned by the irrevocable trust.  These trust funds are also protected from inflation and are not reachable by Medicaid or long-term care facilities.  A funeral trust may be a safer, more stable choice than a prepaid funeral contract.

Other Benefits of Irrevocable Funeral Trusts

In addition to the advantages seen with Medicaid eligibility, there are additional benefits of irrevocable funeral trusts. One benefit is that you are not required to commit to any particular funeral home.  The reality is, funeral homes can go out of business like anyone else.  If you paid your money directly to that funeral home, you have lost your money.  There is no surefire way to predict whether your local funeral home will still be around after you pass away.  A funeral trust also relieves the need to plan all of the details of the funeral ahead of time.  This may relieve you and your family of a huge burden that many would dread having to carry.  However, the specifics can be included in the trust agreement, if that is what you desire to do.

If you have questions regarding funeral trusts, or any other estate planning needs, please contact Wilcox Attorneys, PA online or by calling us at (470) 443-0062.