People buy burial plans as a way of paying in advance for the costs of a funeral and burial. Such plans are usually sold to those who want to take care of such expenses well before they need them and not burden their families with these expenses at an already-difficult time. Funeral homes and cemeteries typically sell burial plans, with the funds held in trust until they are needed for final expenses. Anyone considering purchasing a burial plan should make sure of its coverage, and verify the stability and reputation of the seller.
Medical Expense Basics
It’s not uncommon for people to assume that anything to do with burial costs and expenses can be lumped in with medical costs on a tax return, but according to the IRS, that’s not going to work. Medical expenses are strictly those costs of getting a diagnosis and the treatment or control of injury and disease. The cost of a funeral and burial don’t fit, and the IRS says you can’t deduct them as such.
Effect on Income Taxes
Not only don’t burial plans and funeral expenses work as medical expenses, there’s no other income tax category where they fit. Such costs aren’t allowable as miscellaneous itemized deductions, the only other place where they might go on your tax form. The IRS says that anything to do with final expenses is simply not allowable as an income tax deduction, even if you itemize everything on your 1040.
Effect on Estate Taxes
Anything set aside in a burial plan does not count against your estate when it comes time to figure out estate taxes. The exception to this is that if all the funds aren’t used, whatever is left over ends up going back into your estate and might increase the amount of taxes owed, but the increase is usually small. Regardless of whether you use a burial plan, the cost of the funeral, administration and any final illness expenses all count as deductions against the final value of your estate.
Benefits of Buying a Plan
Despite the fact that the cost of buying a burial plan won’t save you anything on your income tax, doing so offers a few benefits you might want to consider. Typically at the time you buy a plan you also make the arrangements, at least those that are important to you, such as the type of service, the casket and the flowers. Creditors cannot tap into money set aside in a burial plan and you cannot be forced to spend it to pay for health care or nursing home services in the event you become disabled.
- Tulley and Winkelman, P.C.: PreNeed (Pre-Paid) Funeral and Burial Plans
- Funeral Assistant: PreArrangements
- The Annuity News: Pre-Paid Burial Plan
- Bankrate: Funeral Costs
- IRS: Medical and Dental Expenses
- Bankrate: When Funeral Expenses are Deductible
- Shikuma Law Offices: PreNeed (Pre-Paid) Funeral and Burial Plans
- Partners in Wealth: Should I buy a Pre-Paid Funeral Plan?
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