The term qualified funeral trust refers to an arrangement whereby a donor enters into an agreement with a cemetery or funeral home. Qualified funeral trusts are used to set aside funds to pay for goods and services following the death of the trust's beneficiaries.
Also referred to as a funeral trust, a qualified funeral trust (QFT) can be used to prepay for funeral or burial services following the death of the trust's beneficiary. Typically, the donor enters into an agreement with a funeral home to provide for burial-related services when the donor dies. In this example, the donor is also the beneficiary of the trust. Oftentimes, the cost of such services is agreed-to when the trust is created.
The trustee of a QFT can be the funeral home, and the donor can use life insurance proceeds or cash to fund the trust. Many states regulate the prepayment of funeral costs through trusts, and oftentimes require the funeral home to keep trust assets in accounts that cannot be accessed by creditors of the funeral home. According to the Internal Revenue Service (IRS), a QFT must meet all of the following requirements: