§685 Treatment of Funeral Trusts

Summary

Qualified funeral trusts get special tax treatment. Subparts B, C, D, and E do not apply to them, and no deduction is allowed under section 642(b). A trust is a qualified funeral trust if it meets six requirements: it comes from a contract with a funeral service provider; its only job is to hold and invest money to pay for those funeral goods or services for the named people; the only beneficiaries are the people who will get the services at their death; only the beneficiaries (or someone for them) put money in; the trustee opts in; and, but for that choice, the buyers of the contracts would be treated as owning the trust. A trust still meets the last rule for the 60-day period after a beneficiary dies. For tax rates, section 1(e) is applied by treating each beneficiary’s share as its own trust. If a purchaser gets money or property back because a contract is canceled, they recognize no gain or loss; if they get property instead of money, their tax basis equals the trust’s basis right before the payment. The Treasury Secretary may make simpler reporting rules for trusts with one trustee and for trusts that end during the year.