Set Up Your Own Funeral Trust

Don’t set up an irrevocable funeral trust through your insurance company, says MarketWatch columnist Chuck Jaffe. It’s a way for a person to set aside a protected amount of cash to cover his funeral—you set it up before you need long-term care, for example, so that Medicaid can’t touch it even if your other assets are liquidated to pay for health care expenses. But it’s a bad investment because you’re basically letting an insurance company hold your money for a crappy interest rate, as well as tying up your funeral money (or “fun money” if you’re trying to keep a positive outlook on this) with a business that has little incentive to release the funds quickly and efficiently when the time comes. You can set up your own trust through a lawyer and earn a much better rate of return in the meantime.

While most people think of trusts costing thousands of dollars to establish, that’s wrong when the dollars are small and the work is routine. Almost any lawyer who can draft a simple will could establish an irrevocable trust, naming a trustee of your choosing designated to pay your funeral costs and getting the long-term care financing benefits. And if the $12,000 can be invested at, say, 5 percent a year, the $600 gained in the first year will more than pay for the cost of setting up the trust.

“Do not bury your dollars in irrevocable funeral trust” [Modesto Bee]
(Photo: Getty)

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  1. MercuryPDX says:

    First and foremost, AWESOME pic choice.

    Does this have to be set up as an irrevocable trust with a lawyer, or could you just open a savings account or CD with Joint Tenancy/Right of survivor ship with your trustee?

  2. leftistcoast says:

    @MercuryPDX: The problem with the scenario you’re describing is that as long as you are alive, those funds could potentially be reached by a creditor. The point of the trust would be to protect those funds from your creditors so a JTROS is probably not the best idea, unless you are listed as a trustee of the trust as well. Again, this could also be problematic since the you’re both a trustee and the beneficiary (not necessarily a problem, but it could be if the trust documents aren’t well drafted or if you treat the funds ‘as your own’ and not as the property of the trust).

    At the end of the day, it’s in your best interest to discuss the matter with a good attorney (if you don’t have one, check the website of your state’s bar association for a referral service). A good attorney may very well send you in the direction of an insurance company, based on your particular situation…but he/she will also discuss all of your other available options, something the insurance company is unlikely to do.

  3. MercuryPDX says:

    @leftistcoast: Thanks. I assumed that since the account would technically be more of an “ours” instead of a “mine” that it would be fairly safe, but now that I think about it, “their” creditors could go after it too.

  4. MENDOZA!!!!! says:

    just got a will/PoA/estate document drawn up for me and the wife.
    stipulates a contingent trust is created with the estate going in, and part of the proceeds used for funeral service.
    the remainder of the estate goes to the beneficiaries.

  5. rhombopteryx says:

    Or you could just use that money now to pay for your funeral expenses now. Don’t have to worry about inflation or worry if your attorney drafted it correctly or if you’re getting the best possible rate. Sure, you run the risk that the company will go out of business before you ‘go out of business’ or (ha!) prices might actually go down, but it is a simple option.

  6. scampy says:

    Why should I save money for my own funeral. Id rather spend the money while Im alive. When Im dead I could care less what they do with my body.

  7. Optimistic Prime says:

    @scampy: I agree with spending it while you’re alive, but even simple cremation is expensive. The cheap cardboard coffin is $300, and if you have a showing, it’s going to be $600 for embalming, etc. At the very least set up what you want done and set aside enough money to cover it so your loved ones aren’t burdened with the sudden cost.

  8. scampy says:

    Paying for your parent’s funeral is how it is supposed to work. I paid for my father’s funeral and I would expect my kids to pay for mine if and when I ever have kids. If I dont have kids then they can just throw me in the ocean. If I dont have the money and have no relatives to pay then what happens?

  9. kc-guy says:

    I’m still holding out for that “cremate me and turn my ashes into a diamond” funeral.

    You not wear Grandma’s old wedding ring…but you could wear Grandma.