New York State Funeral Directors Association

The Internal Revenue Service (ruling 87-127) has determined that purchasers of preneed funeral trusts are responsible for any income tax (if the purchaser is required to file) resulting from interest earned on the trust account, because the funds, although set aside as payment for funeral expenses, always remain the property of the purchaser.

With the exception of irrevocable trusts, a purchaser always maintains the right to withdraw the funds at any time prior to the performance of the funeral. Although withdrawals are not permitted from irrevocable trusts, the funds may be transferred to a different funeral firm at any time.

The purchaser will receive a tax information statement each year, postmarked by January 31st, (i.e., Grantor Trust Statement). The tax statement provides:

  • The gross interest income earned on your funeral trust. To comply with IRS tax filing requirements, this amount must be reported on your income tax return. Please consult with your tax advisor/preparer should you have any questions pertaining to this requirement.
  • The amount of the fiduciary fee paid for management of the trust, as disclosed in your preneed agreement.
  • The amount of the professional investment advisory fee paid for services, as disclosed in your preneed agreement.