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Title 26 — Internal Revenue CodeRelease 119-73

§685 Treatment of Funeral Trusts

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter J— Estates, Trusts, Beneficiaries, and Decedents › Part I— ESTATES, TRUSTS, AND BENEFICIARIES › Subpart F— Miscellaneous › § 685

Last updated Apr 6, 2026|Official source

Summary

A "qualified funeral trust" gets simpler tax treatment. It is a U.S. trust created under a contract with a funeral or burial business, used only to hold and invest money to pay for funeral services or property for the people named in the contracts. Only those people (or others acting for them) can contribute, and the trustee must elect this treatment. Several normal trust tax rules then do not apply, the trust gets no personal exemption deduction, and each beneficiary's interest is taxed as if it were a separate trust. If a customer cancels a contract and gets money or property back from the trust, no gain or loss is recognized, and the customer takes the trust's basis in any property received. The IRS may allow simplified reporting for trusts with a single trustee and trusts that end during the year.

Full Legal Text

Title 26, §685

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of a qualified funeral trust—
(1)subparts B, C, D, and E shall not apply, and
(2)no deduction shall be allowed by section 642(b).
(b)For purposes of this subsection, the term “qualified funeral trust” means any trust (other than a foreign trust) if—
(1)the trust arises as a result of a contract with a person engaged in the trade or business of providing funeral or burial services or property necessary to provide such services,
(2)the sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use such funds solely to make payments for such services or property for the benefit of the beneficiaries of the trust,
(3)the only beneficiaries of such trust are individuals with respect to whom such services or property are to be provided at their death under contracts described in paragraph (1),
(4)the only contributions to the trust are contributions by or for the benefit of such beneficiaries,
(5)the trustee elects the application of this subsection, and
(6)the trust would (but for the election described in paragraph (5)) be treated as owned under subpart E by the purchasers of the contracts described in paragraph (1).
(c)section 1(e) shall be applied to each qualified funeral trust by treating each beneficiary’s interest in each such trust as a separate trust.
(d)No gain or loss shall be recognized to a purchaser of a contract described in subsection (b)(1) by reason of any payment from such trust to such purchaser by reason of cancellation of such contract. If any payment referred to in the preceding sentence consists of property other than money, the basis of such property in the hands of such purchaser shall be the same as the trust’s basis in such property immediately before the payment.
(e)The Secretary may prescribe rules for simplified reporting of all trusts having a single trustee and of trusts terminated during the year.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2008—Subsecs. (c) to (f). Pub. L. 110–317 redesignated subsecs. (d) to (f) as (c) to (e), respectively, and struck out former subsec. (c), which related to dollar limitation on contributions to qualified funeral trusts. 1998—Subsec. (b). Pub. L. 105–206, § 6013(b)(1), inserted concluding provisions. Subsec. (f). Pub. L. 105–206, § 6013(b)(2), inserted “and of trusts terminated during the year” before period at end.

Statutory Notes and Related Subsidiaries

Effective Date

of 2008 Amendment Pub. L. 110–317, § 9(c), Aug. 29, 2008, 122 Stat. 3530, provided that: “The

Amendments

made by this section [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [Aug. 29, 2008].”

Effective Date

of 1998 AmendmentAmendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

Effective Date

Pub. L. 105–34, title XIII, § 1309(c), Aug. 5, 1997, 111 Stat. 1043, provided that: “The

Amendments

made by this section [enacting this section] shall apply to taxable years ending after the date of the enactment of this Act [Aug. 5, 1997].”

Reference

Citations & Metadata

Citation

26 U.S.C. § 685

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73