It would be my assumption that the majority of the country’s cemeteries do not maintain a trust for the maintenance and care of its graves. While this may differ from state to state, most states’ perpetual care statutes exempt small family cemeteries, not for profit cemeteries, municipal cemeteries, county cemeteries and church cemeteries from their care trust requirement. Consequently, there may be tens of thousands of cemeteries that will be dependent upon volunteers to mow the grass after the last grave has been sold.
In the absence of a cemetery trust fund, it was once very common for a family to set aside a few thousand dollars in a grantor care trust to provide income for flowers and maintenance of that family’s grave spaces. Today, banks are very reluctant to establish, or accept transfer of, grantor care funds. For the past several years, small trusts’ expenses have exceeded income. Trustee fees often consume the first 1% of the trust’s income. Then, there are tax preparation expenses. Grantor care trusts are subject to the same tax reporting requirements as the cemetery care fund trust (a Section 642i return). The Section 642i return is a hybrid type of complex 1041 that typically requires the bank to engage an outside tax preparer. Tax prep fees for a cemetery care trust can run from $250 to $500. For a $10,000 grantor care fund, the lowest tax prep fee would consume the next 2.5% of trust income. Accordingly, the $10,000 grantor care trust must earn 3.5% before a dollar can be distributed for the care of the family’s graves.
Funeral preneed trusts face similar expense hurdles, but state funeral director associations developed master trusts to achieve diversification and economies of scale. In consolidating funeral accounts, the association master trust reduced administrative expenses and gained the critical mass needed to diversify investments.
But, the master trust concept has not gained much traction with state cemetery associations. That has forced a few death care fiduciaries to piece together cemetery master trusts with small accounts. Until a grantor care trust has the opportunity to join one of those master trusts, the family’s graves will not see flowers anytime soon.