Funeral costs can be a significant financial burden on loved ones, which is why many people opt to plan ahead and set up funeral trusts. These trusts are designed to cover funeral expenses, ensuring that your loved ones are not left with the burden of paying for your funeral. However, there are two main types of funeral trusts: revocable and irrevocable. In this article, we will discuss the differences between these two types of funeral trusts and help you determine which one is right for you.
What is a Revocable Funeral Trust?
A revocable funeral trust is a type of trust that can be changed or canceled by the person who set it up at any time. These trusts are also known as “payable on death” (POD) accounts. With a revocable funeral trust, the person setting up the trust maintains complete control over the funds, and can change the beneficiary or the amount of the trust at any time. The funds in a revocable funeral trust are not protected from creditors, meaning that they can be seized to pay off any outstanding debts.
What is an Irrevocable Funeral Trust?
An irrevocable funeral trust, on the other hand, is a trust that cannot be changed or canceled once it has been established. These trusts are also known as “pre-need” trusts. With an irrevocable funeral trust, the person setting up the trust gives up control over the funds in exchange for certain benefits, such as protection from creditors or eligibility for Medicaid.
Benefits of Revocable Funeral Trusts
One of the main benefits of a revocable funeral trust is that the person setting up the trust maintains complete control over the funds. This means that they can change the beneficiary or the amount of the trust at any time. Additionally, the funds in a revocable funeral trust are not protected from creditors, which can be a benefit in certain situations. For example, if the person setting up the trust has significant debts, their creditors may be able to seize the funds in the trust to pay off those debts.
Benefits of Irrevocable Funeral Trusts
The main benefit of an irrevocable funeral trust is that it provides protection from creditors. Because the person setting up the trust gives up control over the funds, those funds are protected from creditors and cannot be seized to pay off outstanding debts. Additionally, irrevocable funeral trusts can be used to qualify for Medicaid. By transferring assets into an irrevocable funeral trust, a person can reduce their assets and potentially become eligible for Medicaid benefits.
Differences between Revocable and Irrevocable Funeral Trusts
There are several key differences between revocable and irrevocable funeral trusts, including:
As previously mentioned, revocable funeral trusts allow the person setting up the trust to maintain complete control over the funds. This means that they can change the beneficiary or the amount of the trust at any time. With irrevocable funeral trusts, the person setting up the trust gives up control over the funds, which are then managed by a trustee.
Revocable funeral trusts do not offer any tax benefits, as the funds in the trust are still considered part of the person’s estate for tax purposes. Irrevocable funeral trusts, on the other hand, can offer tax benefits, as the funds in the trust are not considered part of the person’s estate.
Irrevocable funeral trusts can be used to qualify for Medicaid, as the funds in the trust are not considered part of the person’s assets. Revocable funeral trusts, on the other hand, are considered part of the person’s assets and may impact their eligibility for Medicaid.
Irrevocable funeral trusts can be more expensive to set up than revocable funeral trusts, as they require the services of an attorney or financial advisor.
Which Type of Funeral Trust is Right for You?
Determining which type of funeral trust is right for you will depend on your individual needs and preferences. If you value control over the funds and want the ability to change the beneficiary or the amount of the trust, a revocable funeral trust may be the better option. However, if you are concerned about protecting your assets from creditors or want to qualify for Medicaid, an irrevocable funeral trust may be the better option.
Setting up a Funeral Trust
Setting up a funeral trust can be done through a funeral home or with the assistance of an attorney or financial advisor. It is important to carefully consider your options and choose a reputable provider. Additionally, you should carefully review the terms of the trust and ensure that you fully understand the implications of setting up either a revocable or irrevocable funeral trust.
This article was published by a third party and is intended for general informational purposes only and does not necessarily represent the views of Alliance America. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal or financial advice. You should consult with a financial professional regarding any specific questions about your financial situation. Alliance America is a life and income planning company. It is not a lawyer or law firm and is not engaged in the practice of law. For more information about how to purchase an irrevocable funeral trust or to talk to a financial professional, visit our website at www.allianceam.com.