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]