Creating and funding a Funeral Trust is one of the best ways to give you and your loved ones peace of mind, and the ability to access funds quickly to cover your funeral and final expenses.
Funerals can easily cost $7,000 to $10,000 or more depending on the services desired or required, a cemetery plot or mausoleum space, grave marker, and so on.
A Funeral Trust is set up through an insurance company as a way to protect a portion of the insured’s assets to pay for funeral expenses. It’s a way to cover funeral costs in advance and to ease the burden on your survivors.
What’s more, special rules that apply to funeral trusts make them a good way to shield enough assets to cover your final expenses from Medicaid and other creditors. A Funeral Trust should be an integral part of your insurance planning and funeral pre-arrangements.
Ways to Fund a Funeral Trust
Single Premium – A single premium plan involves a single payment for the amount of the Trust. This type of plan is good for individuals who have significant assets with existing or imminent health issues as it will protect the money placed in the Trust from recovery efforts by Medicaid, bills from nursing homes and other health care providers, as well as other creditors.
Some pre-need Trusts accrue interest, which can help defray the inflation of funeral costs that may occur from the time the Trust is established until the funds from the Trust are needed to pay for actual funeral expenses.
Trusts can also be established for other family members, guaranteeing that future funeral expenses are covered.
Transfers – Many people have money that has been set aside and largely forgotten. Savings Bonds and Certificates of Deposit that have matured and which are earning little or no interest are a good way to fund your Funeral Trust.
The penalty-free 10% withdrawal from an annuity is another way to fund your Funeral Trust with wealth or financial assets that are not currently needed. This assures your final bills will be paid in a timely way in the event of estate probate, which can freeze or wipe out other assets.
Payment Plans – For those who do not have a large lump-sum amount available for pre-funding, and who reasonably expect to live several more years, a level-payment plan can be used. With such a plan you pay in a relatively small premium each month. This enables you to provide for your final expenses over time with the full protection of an irrevocable trust.
Funding for Others
You can also establish a Irrevocable Funeral Trust for your children and their spouses.
If for example you have a spouse and three children all of whom are married, you have the option to set up 8 Immediate Funeral Trusts, one for each family member and their spouse. If your state allows a maximum of $15,000 per Trust, this would move up to $120,000 into trusts that are shielded from probate and other recovery efforts and that will be guaranteed to be available for the funeral costs of each of those family members.
Such plans are portable, meaning those funds can be used at any funeral home in any state. Any excess funds not spent on funeral expenses will then will go back to the estate of the deceased.
Revocable vs. Irrevocable Trusts
In Wisconsin, a revocable trust can be created by anyone and dissolved by the person who created it. These plans do NOT however received favorable tax treatment or exemption from creditors or Medicaid “spend down” rules. Funds placed in a revocable trust revert back to the estate of the person setting it up, making them available to any creditor owed money by the estate.
An irrevocable trust can’t be dissolved until the terms of the trust (the passing of the trust creator or beneficiary) are satisfied. Because no person or entity can dissolve an irrevocable trust, it enjoys special protections so that any or all of its funds can be used for final expenses before any remaining funds are passed back to the beneficiary’s estate.
In Wisconsin you have a “30-day free look” period during which you can cancel an Irrevocable Trust for any reason at all, and receive a full refund.
After the 30-day “free look” period, an Irrevocable Trust cannot be changed or dissolved. Once the policy is assigned to the Irrevocable Funeral Trust (IFT) the assets are no longer yours to control.
The reason for this is that if the Trust were not IRREVOCABLE it would be subject to attachment by creditors, nursing homes, and Medicaid – and therefore might not be available for payment of your final expenses.
The funds are assigned to a Trustee (usually the insurance company that sets up the IFT for you) who can only make distributions for payments of the insured’s final expenses, with any left over amounts being returned to the deceased’s estate.
For more information about how to set up either a Revocable or Irrevocable Funeral Trust to cover your final expenses, contact the funeral planning experts at Epilogue Planning Professionals at (715) 571-4160.
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