Pros and cons of funeral trusts

Man holding red rose at funeral
  • Some nursing homes require a funeral trust as a condition of admission.
  • At best, funeral trusts afford your heirs priceless peace of mind.
  • At worst, the assets are raided or unavailable for their intended use.

Funeral trusts allow people to pay funeral expenses in advance, and that can spare survivors a lot of difficult decisions, say advocates. Some nursing homes even require a funeral trust as a condition of admission. But if the trustees aren't reputable or the information isn't current, financial planners warn that such trusts can bring bereaved families more grief.

The Internal Revenue Service defines a funeral trust as "a 'pooled income fund' set up by a funeral home or cemetery to which a person transfers property to cover future funeral and burial costs." They're often referred to as "pre-need programs."

A blessing for some

Jeanni Harrison, a Certified Financial Planner at Harrison-de Charon Wealth Advisory Group in San Diego, says she was initially skeptical about her mother's decision to pay for funeral arrangements in advance. But when her mother passed away unexpectedly a year or two later, she says, the peace of mind it afforded her was priceless.

"It was probably one of the greatest gifts my mother ever gave me," Harrison says. "She made the necessary choices in advance -- to be cremated, the type of urn she wanted for the ashes and so on. All I had to do was tell the hospital which mortuary to call. They took care of everything."

When no arrangements have been made, Harrison says, "there's sometimes a tendency on the part of mortuaries to play on survivor guilt to push up spending."

A curse for others

In contrast, Angie Grillo, a Certified Financial Planner at South County Financial Planning in Laguna Niguel, Calif., says her experience was anything but peaceful. Although her grandmother had assured family members that "everything was taken care of," it wasn't.

"We didn't even know she had a funeral trust until we found the account statement in her papers," Grillo says. "She lived in Florida, but the trust had been written while she lived in Wisconsin, and the trustee and beneficiary was a funeral parlor in Wisconsin."

The Florida firm refused to accept the funeral trust for payment, and the Wisconsin funeral home refused to release funds.

"My father was extremely upset that although the money was set aside to cover her burial, he could not access it," Grillo says.


There ensued months of phone calls, paperwork and mounting frustration, aggravated by the fact that an aunt who held power of attorney for Grillo's grandmother had died before her. Finally the Wisconsin funeral home released the funds to the successor power of attorney, Grillo's uncle, who was not the executor of the estate.

Potential for abuse

Unlike Grillo's grandmother, Harrison's mother made her arrangements through an insurance company rather than a funeral home, a precaution J. David Lewis, president of Resource Advisory Services in Knoxville, Tenn., endorses, even though the fee structure will likely be higher.

Early in his career, Lewis says, he managed an investment trust for a funeral home, an experience that left him wary of the potential for abuse.

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