New Jersey Mortuary Science Practice Exam

What type of trust can fund a prepaid funeral agreement?

1. A living trust

2. An irrevocable trust

3. A testamentary trust

4. A discretionary trust

The correct answer is: An irrevocable trust

An irrevocable trust is specifically designed to be used for funding prepaid funeral agreements, as it provides a way to set aside money for future funeral expenses while protecting those funds from being considered part of the individual's estate for Medicaid eligibility purposes. Once the assets are placed in an irrevocable trust, they cannot be altered or withdrawn by the grantor, which ensures that the funds will remain dedicated to the intended purpose of covering funeral costs, thus providing financial security for the individual's final arrangements. Living trusts, while useful for estate planning, allow for flexibility and can be altered or revoked by the grantor, making them less suitable for the specific purpose of funding prepaid funeral arrangements. Testamentary trusts are created through a will and take effect after the individual's death, which does not align with the pre-payment aspect of funeral services. Discretionary trusts give the trustee the authority to decide how and when to distribute the assets, which could create uncertainty about the availability of funds for the planned funeral, thus making them an impractical choice for this particular need.