The Internal Revenue Service 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. 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.
A Purchaser should receive a tax information statement each year by January 31st, (i.e., 1099 or K-1Grantor Trust Statement) indicating the amount of interest earned on the account for the previous year. In addition, at any time upon written request, a funeral firm must provide a Purchaser with an accurate balance including principal and accrued interest.
Most funeral firms are extremely knowledgeable concerning all aspects of prepaid funerals in general, spicifics on SSI/Medicaid, and often have the added benefit of local Social Services Department relationships which may make this part of the "spend down" process go more smoothly.