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Funeral Trust Dollar Limitation Repealed

Please note: This item is from our archives and was published in 2008. It is provided for historical reference. The content may be out of date and links may no longer function.

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Editor: Alistair M. Nevius, J.D.

On August 29, 2008, President Bush signed into law the Hubbard Act, P.L. 110-317, which repealed the dollar limitation on funeral trusts.

Under Sec. 685(c) (prior to repeal), aggregate contributions to a qualified funeral trust could not exceed $7,000. That limitation has been eliminated, effective August 29. The Congressional Budget Office estimates that this change will raise a small amount of revenue ($6 million from 2009 through 2018) because income earned by a qualified funeral trust is taxed at estate and trust tax rates.

Before the limitation was repealed, a qualified funeral trust that had aggregate contributions in excess of $7,000 ceased to be a qualified funeral trust, and its income would be taxed as ordinary income of the grantor of the trust—at a lower individual income tax rate. Because the limitation has been removed, qualified funeral trusts will no longer be disqualified for excess contributions and will be able to hold more funds; therefore they should have more income, and all the income will be taxed at estate and trust tax rates.