Securing Your Legacy: Burial Trusts vs. Life Insurance - Which is Better?
Life insurance is an essential component of financial planning, offering a safety net for loved ones. Burial trusts, also known as Funeral Trusts, allow you to set aside funds specifically for funeral and burial expenses, and ease end-of-life financial stress.
What is an Irrevocable Burial Trust?
An Irrevocable Burial Trust ensures funds can only be used exclusively for funeral and burial costs, and other incurred end of life expenses. Once an irrevocable burial trust is established, the funds cannot be accessed and the terms cannot be altered—thus rendering it irrevocable.
Funds within an irrevocable funeral trust are not considered part of the grantor’s estate, and are not taken into account for Medicaid or tax purposes. These funds are also protected from creditors. Interest can often be earned on burial trusts as well.
For more information on irrevocable burial trusts and the other types of burial trusts, please see Burial Trusts: What are they.
Burial Trusts vs Life Insurance Coverage Comparison
While life insurance can help with final expenses (including funeral and burial costs), the benefits are flexible and can broadly be allocated to assist beneficiaries as they choose, such as replacing income or covering large expenses. The burial trusts set aside money exclusively for your end of life expenses.
For further details on the different types of life insurance, review Informed Choice’s Life Insurance 101 post.
Pros and Cons of an Irrevocable Funeral Trust
Below is a brief breakdown of the pros and cons of burial trusts:
Pros
Price security: Many irrevocable burial trusts ensure a price for services, regardless of future inflation.
Prompt liquidation: Designed explicitly for funeral needs, funds will be promptly available when needed.
Predefined arrangements: Allows you the freedom to tailor your needs and wishes, preventing potential disagreement between loved ones.
Tax benefits: Interest can be earned on funeral trusts and is often tax-free.
Cons
Complex contracts: The fine print of a Funeral Trust contract is often complex, which can end in unforeseen outcomes. One of Informed Choice’s best can help you navigate the complex waters.
State-by-state regulation: Regulatory laws on Funeral Trusts vary state by state. If your state of residence changes, the Funeral Trust may be subject to fees.
Inflexibility: Once funds are allocated to an irrevocable burial trust they cannot be revoked and the terms are secured.
Understanding Your Options
The National Funeral Directors Association states that the average funeral costs over $6,000. While life insurance is important and a great aid to your loved ones, setting up an irrevocable burial trust may help mitigate the specific stress of end of life expenses.
Familiarize yourself with the fine print of life insurance policies you are considering, be they a burial trust, a traditional whole life policy, or term insurance.
Conclusion:
Creating a plan about the legacy you leave behind takes careful examination of your unique financial situation, as well as knowing the life insurance and burial trust options available to you.
By setting up a burial trust, you will be able to mitigate end of life stress for your loved ones. Contact Informed Choice’s experts or book an appointment today to walk through your options.
