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What Is An Irrevocable Burial Account?

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Let’s face it, funerals are costly. When my father passed away, my sister and I were lucky that Dad had made me a joint owner on his checking account. It meant that we could arrange for and pay his funeral bill without either of us having to take money from our own savings. But, another way he could have helped us avoid the possible financial burden of a funeral would have been to pre-pay his funeral services. One way to do this is through an irrevocable burial account.

What is an irrevocable burial account? An irrevocable burial account is a type of trust account that you can use to save for your future funeral expenses. The money in the trust is not subject to probate, so it can be used to pay for these expenses without going through the court system.

Also known as an Irrevocable Funeral Trust, an Irrevocable Burial Account is used to pre-pay funeral expenses. It requires the creation of a legal document.

As the name implies, an irrevocable burial account is…well, permanent and irreversible. Once this money is placed in the account or trust, it can no longer be accessed except to pay for the owner’s funeral expenses. And – the money can ONLY be used for funeral expenses. Despite this, there are some advantages to having one.

Keep reading to learn why you might want to set up an irrevocable burial account or irrevocable funeral expense trust.

Is A Prepaid Funeral A Good Idea?

A prepaid funeral is a good idea if you want to be sure your funeral expenses are covered and your loved ones don’t go into debt to pay for it.

With an irrevocable burial account (IBA), you make payments into the account over time. Once the account is fully funded, the money is then used to cover the costs of your funeral when the time comes.

There are many different final expenses you can include in your irrevocable burial account, such as the funeral home you want to perform the services, burial expenses for the cemetery plot or mausoleum you wish to use, funeral costs, the casket or urn, the headstone, and more.

Additionally, by prepaying for your funeral, you can save money in the long run because you will be locking in today’s prices and can avoid the possibility of your family having to pay more for your funeral in the future.

Given the current sky-high inflation we’re experiencing, you can see how someone who paid for a funeral years ago would have gotten a bargain.

My parents purchased a burial plot back in the 1950s, so they saved a ton of money! Of course, my sister and I still had to pay the burial costs to have these plots opened when the time came for their funerals, which is another expense to consider beyond the things we generally think of.

Another thing to consider is that by prepaying your funeral, you can make sure that your funeral arrangements are exactly as you want them to be. This can provide peace of mind for your loved ones in case something happens to you.

Read about more things to consider when caring for senior parents in our article, Aging Parents Checklist.

What Are Some Of The Benefits Of An Irrevocable Burial Account?

There are several benefits to setting up an irrevocable burial account.

As we’ve said, with an account like this you won’t have to worry about how you or your loved ones will pay for your funeral when the time comes. It can be used to cover the costs of cremation or other end-of-life expenses, which can help your family avoid financial hardship at an already difficult time.

In addition, other benefits include:

  • An irrevocable burial account is usually exempt from both probate and estate taxes (probate is the legal process that is used to settle your estate after you die). This means that your loved ones will be able to access the funds immediately after you die, without having to go through the probate process. Probate is a procedure that can take anywhere from a few months to a year or more, so it’s great that your family can have access to funeral money right away.
  • The account may provide tax benefits. When you set up an irrevocable burial account, you may be able to take a tax deduction for the money you contribute. This could save you money in the long run and potentially help reduce your taxable income.

You can fund your irrevocable burial account with a lump sum of cash, or by setting up regular payments from your checking or savings account. You may also be able to roll over funds from an existing life insurance policy.

Also, an irrevocable burial account may protect some or all of your assets from being a countable resource for Medicaid eligibility purposes.

You see, when a person needs to go on Medicaid, one of the factors that is considered is their assets. If they have too many assets, they may not be eligible for Medicaid benefits.

But, one way for Medicaid applicants to protect some assets from being counted is to put them into an IBA or funeral expense trust. This is because the irrevocable burial trust will own the assets that are placed in it, and not you.

What Are Some Negatives To Irrevocable Burial Accounts?

Be aware that there are some drawbacks to setting up an irrevocable burial account. For example, you may not be able to change the terms of the agreement once it’s in place, and you may not be able to get your money back if you decide you no longer want to use it.

That’s right – it’s important to understand that once the money is in the account, it typically cannot be withdrawn (irrevocable means that what’s done cannot be reversed).

So if you put money into the account now and need it at some point in the future, you can’t get it. Basically, just consider it gone and spent the moment it’s credited to the account. (One option for if you need to cancel your irrevocable burial account, however, is that you may be able to transfer the account to another family member.)

Another negative is that you must have the designated funds available to put into the account when you open it. So if you want to put in $12,000, you must have $12,000 available to put into the IBA at the time the legal document is created. You cannot fund it with a smaller amount of money and then pay into the account until you reach the designated amount.

It is also possible that the account may not be as beneficial as you thought it would be. For example, the interest rate on the account may be low or the account may have fees associated with it. Be sure to ask about these items before setting up an IBA.

Keep in mind, too, that when you set up an irrevocable burial account, you are essentially making a gift to your loved ones. This means that there may be tax implications depending on the value of the account and the size of your estate. So while the account may give YOU a tax deduction, it might mean your loved ones pay more in taxes when they inherit your estate.

And finally, these accounts can be expensive to set up and maintain, plus some states (and counties) set limits on how much you can contribute, so be sure to do your research and talk to a financial advisor to see if it’s the right option for you.

What Happens To The Money Leftover In A Funeral Trust?

What happens to the extra money left in the account if your funeral ends up costing less than you thought?

It depends. Typically the remaining money would go to the person(s) you designate as your beneficiary on the account. It is worth noting that once the irrevocable burial account is created, the person who owns the account cannot change the beneficiaries of the account. The only way to change the beneficiaries is to close the account and open a new one with different beneficiaries.

I should also tell you that, in some states, if there are remaining funds, it is possible that the excess cash value will go to the state where the trust was created, not to your heirs. And sometimes unscrupulous funeral directors will make their funeral home the beneficiary for any extra funds.

That’s why it is best if you talk to an elder attorney or a financial advisor before setting up a funeral trust!

Is A Burial Savings Account The Same As An Irrevocable Burial Account?

Although the name sounds similar, a burial savings account is not the same as an irrevocable burial account.

A burial savings account is simply a regular savings account that you can use to save for your future funeral expenses. You can withdraw money from this type of account at any time, not just at the time of death.

On the other hand, as we’ve said before, the money in an irrevocable burial account cannot be withdrawn until it is used to pay for your funeral.

Who Can Set Up An Irrevocable Funeral Trust Or Irrevocable Burial Account?

Anyone can set up an irrevocable funeral trust, as long as they are age 18 or older and are legally competent. You can even set up an irrevocable funeral trust for someone else. Typically these accounts are set up through insurance companies (watch out for high fees to do this) or funeral companies, however we recommend that you go through an estate-planning attorney to create one.

This is because some funeral companies will appoint themselves as trustee of the account. But, if the funeral home goes out of business before you pass away, you would likely lose your money.

Additionally, a funeral provider could charge higher-than-normal fees for burial services or the funeral plans after you pass away to ensure they get any excess funds in the trust.

Likewise, they could make themselves the beneficiary of the trust, which means your immediate family members can’t use a different funeral home.

They are locked into using only the particular funeral home that set up the trust agreement – regardless of where you pass away (so, if you die in Miami and the funeral home is in New Jersey, your family will pay a pretty penny to transport you back there).

For these reasons, please speak to financial planners or an estate attorney to make sure that the trust is set up correctly and meets your specific needs and to be sure this type of account is right for you.

Conclusion

No one wants to think about their own death but sometimes it is the kindest thing to do for your loved ones. There are many ways you can prepare – buying funeral insurance, opening a simple joint bank account with the person whom you trust to take care of your arrangements, or opening an irrevocable burial account, among others.

In order to ensure that you get the best advice, we strongly recommend that you consult with an estate attorney to get the best advice for your situation.

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