You have probably heard of the Funeral Expense Trust. It is a type of life insurance, which lets you make permanent decisions about your future after you die. It also gives beneficiaries a way to manage their inheritance (if they should die unexpectedly) and receive money for expenses they may not be able to pay out independently. The Funeral Expense Trust is a legal agreement that states that the proceeds will be given to your beneficiaries in case of your death according to their directives established within the trust. This type of Life Insurance is a way for people to provide for their family and friends after they have passed away. However, there are some situations where a Funeral Expense Trust may not be the best approach.
When you decide on this type of insurance plan, it can be a good option for people who want complete control over their estates and do not wish to leave anything to their family members. However, there are situations where a Funeral Expense Trust is not advisable, and you should consider several factors before you decide. First of all, it is essential to understand how it works. Irrevocable trusts are made between a person and an insurance company. The insurance company holds a policy against any claims relating to the death of the covered individual.
In return, the insured pays premiums to the insurer to cover any future costs related to his life. Once the policy is in place, it becomes a part of the deceased’s estate and can only be changed by court order. As such, it can prove to be difficult to change if the insured has already paid his life insurance premiums and death benefits. This is where a Funeral Expense Trust comes into play.
Essentially, a final expense insurance policy provides funding for the costs of a funeral service and burial. Funds are pooled from several assets held by the trust, generally in the form of income shares or life insurance. These funds are used to pay for any legal fees, expenses, officiant’s fees, flowers, transportation, and other costs associated with a funeral service. In most cases, this money is placed into a trust account, held by the funeral home, until it is needed again.
One of the primary reasons that an individual will use a final irrevocable funeral trust is because they are paying for their loved one’s funeral expenses out of their own pocket. If they were to save the funds and then use them for their intended funeral expenses, chances are that they would have to pay taxes on the fund. Additionally, if there were to be an additional inheritance, the government may also have issues with how the funds were used. By placing the funds into an irrevocable trust, it ensures that the government will not become involved in the process. Furthermore, if the individual truly did have the funds for their burial expenses, they may have to pay taxes on the estate tax that arises from using the funds.
Funds remaining in these accounts can be used for funeral expenses, as well as extended family travel costs, such as airfare for the memorial transportation and cemetery costs. The funds can also be used to pay other expenses, including mortgage payments, legal fees, and debt settlements. Often, individuals who are planning a death do not want their surviving family members to pay for their expenses, particularly if they were struggling to make ends meet before the death. Although this can be a touchy subject, many families feel that the deceased’s surviving family members should have some type of monetary support to ease their transition into mourning.
On the other hand, some individuals may choose not to place the funds into an irrevocable or revocable trust, but to place them into a standard bank account, usually called a CD. Funds from CD’s are considered non-taxable, but they may still need to meet estate tax requirements. If the balance in the CD is greater than the deceased person’s life insurance policy, it may be required to be deposited into an IRA. In addition, IRA’s can be held by the individual until the funds are used for retirement, although there are special rules regarding IRAs and Funeral Expense Trusts.
The Funeral Expense Trust also serves another purpose for individuals who are planning a death, as well. In addition to protecting funds from probate claims, this will also allow the client to control the distribution of funds. If the client has questions or concerns, they may contact the funeral home for assistance in obtaining the necessary forms. In the case of the unexpected death of an individual who had already been cremated, the Funeral Expense Trust will cover all funeral costs, including the cremation. If the individual’s death is unexpected, the funeral home can place the cremains in the name of the Funeral Expense Trust and disburse funds to the various designated beneficiaries. The forms that must be filled out are fairly simple, which makes them easy to do, even for individuals who may not be very organized.