§685 Treatment of funeral trusts

Summary

Tells how special “funeral trusts” are taxed. Certain parts of the trust tax rules (subparts B, C, D, and E) do not apply to a qualified funeral trust, and the trust cannot take a deduction under section 642(b). A qualified funeral trust (not a foreign trust) must meet six rules: it comes from a contract with a funeral service provider; its only job is to hold and invest money and pay for funeral goods or services for the people named; the only beneficiaries are the people who will receive the services at their death; only those beneficiaries (or someone for them) put money into the trust; the trustee chooses to have these special rules apply; and without that choice the buyers would otherwise be treated as owning the trust. For tax-rate rules, each beneficiary’s share is treated as if it were a separate trust. If a buyer cancels a contract and the trust pays that buyer, the buyer does not report a gain or loss from that payment. If the payment is property instead of cash, the buyer’s tax basis in that property is the same as the trust’s basis right before the payment. The Treasury Secretary may make simpler reporting rules for trusts that have a single trustee or that end during the year.