There are two methods for preparing a Federal Form 1041QFT. One method has the trustee applying the QFT tax rate schedule to the preneed trust’s net income. For larger preneed trusts, this method will likely trigger the highest tax rate (37%). The other method is called the composite return, where trust income and expenses are
qualified funeral trust
Qualified Funeral Trusts: Illinois and Schedule M
By Bill Stalter on
Posted in Preneed Tax, Taxes
The Illinois Department of Revenue made a revision to Schedule M of the 2014 IL-1041 form that may go unnoticed by many trust tax preparers. The change is meant to clarify that preneed accounts established pursuant to the Illinois Funeral or Burial Funds Act may take an adjustment that will eliminate the preneed trust’s state…
Qualified Funeral Trusts: once a simple concept
By Bill Stalter on
In has been almost twenty years since the Balanced Budget Act of 1995 introduced the concept of a simplified tax return for preneed trusts. Initially, the “Qualified Funeral Trust” concept called for a flat 15% tax on accounts with contributions of $5,000 or less. A conference committee succeeded in getting a higher contribution limitation ($7,000)…
The Medicare Tax and QFTs: Don’t look a gift horse in the mouth
By Bill Stalter on
Over the past few years, preneed trust administrators have been wondering whether a Section 685 qualified funeral trust could look to each individual trust’s income and apply the lower tax rates for long term capital gains and qualified dividends. The issue has taken on more relevance as preneed trusts look to diversify out of …
Obama’s Plan to Tax the Rich: death care trusts
By Bill Stalter on
They say that the devil is in the details, and that is proving true for the Obama definition of the “rich” (those families that earn more than $250,000) and the plan to fix the budget. The IRS provided some detail to the Obama plan last December when it published a proposed regulation that would increase…
Too Literal of an Interpretation: Mississippi and Preneed Taxes
By Bill Stalter on
The Mississippi Secretary of State seems to be taking a very proactive approach to the regulation of preneed and perpetual care funds. Over the course of the last few years, the Regulation and Enforcement Division of the Secretary of State’s office has averaged an enforcement proceeding per month. We were curious what type of enforcement…
Making Lemonade: the 2008/09 Capital Loss Carry Over
By Bill Stalter on
Posted in Preneed, Preneed Tax
The 2010 calendar year proved a welcomed change for many trust funded preneed programs. The 2008 collapse of the home mortgage market triggered a melt down of bonds that lingered well into 2009. The press provided extensive coverage of how the situation impacted our 401k accounts. Stories about value declines of 25% to 33% were…
Tax Day and next year’s QFT
By Bill Stalter on
Many preneed trusts either experienced significant capital losses last year or are sitting on assets that have unrealized losses. For those trusts that have taken a Section 685 election, these losses may be carried into future years as a capital loss carryover. While everyone would prefer to avoid realizing those losses, that loss can be…
The IRS and its role in the IFDA master trust problems
By Bill Stalter on
As new allegations surface about the Merrill Lynch broker associated with the IFDA master trust, some may appropriately ask why a preneed trust would ever invest in an insurance product. There was a time when the twain shall never meet. That all changed in January 1988, and specifically when the IRS and Treasury decided to…
The Section 685 QFT amendment: Supporting Soldiers’ Survivors
By Bill Stalter on
Posted in Preneed, Preneed Tax
If the President signs the Hubbard Act (H.R. 6580), the qualified funeral trust will have the capability to fund all of an individual’s final expenses. When enacted, Section 685 imposed a $7,000 cap on the preneed trusts that could elect special tax treatment. While the limitation increased annually, the cap was too low to permit funding…