On Aug. 29, the President signed H.R. 6580 (the Hubbard Act) into law (P.L.110-317). Although the Hubbard Act deals mainly with benefits to Armed Forces members and their families, it also repeals the dollar limit on contributions to qualified funeral trusts.

Background. The trustee of a pre-need funeral trust that is a qualified funeral trust may, to the extent the trust would otherwise be treated as a grantor trust, elect special income tax treatment for the trust. A qualified funeral trust is any trust (other than a foreign trust) that meets the requirements of Code Sec. 685(b), including the requirement that the trust arise as a result of a contract with a person engaged in the trade or business of providing funeral or burial services or property necessary to provide the services. If the election is made, the rules for simple trusts and complex trusts, the throwback rules, and the grantor trust rules won't apply to the qualified funeral trust. Additionally, the income tax rate schedule generally applicable to estates and trusts under Code Sec. 1(e) are applied to each qualified funeral trust by treating the interest of each beneficiary in each trust as a separate trust. However, no deduction for a personal exemption under Code Sec. 642(b) is allowed.

Under pre-Hubbard Act law, Code Sec. 685(c) provided that a qualified funeral trust can't accept aggregate contributions by or for the benefit of an individual in excess of an inflation adjusted dollar amount ($9,000 for a contract entered into during calendar year 2008).

New law. For tax years beginning after Aug. 29, 2008 (the enactment date), the Hubbard Act repeals the Code Sec. 685(c) dollar limit on contributions to a qualified funeral trust. (Act § 9)