Qualified Funeral Trust (QFT)
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:
- The trust arose as a result of a contract with a person engaged in the trade or business of providing funeral or burial services or property to provide such services.
- The sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use those funds solely to pay for funeral or burial services or property to provide such services for the benefit of the beneficiaries of the trust.
- The only beneficiaries of the trust are individuals for whom such services or property are to be provided at their death under the contracts described above.
- The only contributions to the trust are contributions by, or for, such beneficiaries’ benefit.
- The trustee makes, or previously had made, the election to treat the trust as a QFT.
- The trust would have been treated as owned by the purchasers of the contracts under the grantor trust provisions of the code if the QFT election had not been made.