Equalities Minister Angela Constance set out a 10-point plan to address the "growing issue" of people ending up in poverty due to funeral expenses.
The new Funeral Expense Assistance is expected to be introduced by September 2019 and is part of a raft of benefits being devolved to the Scottish Parliament from Westminster.
Other actions include introducing a funeral bond pilot scheme to assist savers, publishing guidance on funeral costs by December 2018, and strengthening consumer protection on funeral plans.
In 2016, the basic cost of a burial, excluding undertakers' fees, was £1,373, up 8% on the previous year, Citizens Advice Scotland found.
There were large differences in price across the country with Edinburgh the most expensive council area at £2,253, and the Western Isles the cheapest at £701.
Stirling University researchers found councils across Scotland spent an estimated £500,000 on so-called "paupers'" funerals the same year.
Ms Constance launched the new plan on a visit to Renfrewshire Wide Credit Union in Paisley on Tuesday.
She said: "The death of a loved one is an incredibly difficult time for anyone. It can be even harder when money is tight.
"We know funeral costs can push people into poverty - and often it is those already in financial hardship who face increased difficulties.
"That is why we are taking decisive action to tackle this growing issue and have engaged with local authorities, the funeral sector and other support services. I am pleased by the willingness to work together to find solutions that support more affordable funerals.
"The Scottish Government is committed to supporting those who need it most following a bereavement, which is why we will introduce a new Funeral Expense Assistance from summer 2019."
The Church of Scotland welcomed the new plan and said it would work with the government to end funeral poverty.
Martin Johnstone, Secretary of the Kirk's Church and Society Council, said: "Over recent years we have consistently spoken out against the growing scandal of funeral poverty. Every week, ministers in all parts of Scotland
spend time with families who are not only grieving the death of a person that they love but are also worried about how they will pay the funeral costs.
"It is unacceptable that families are being forced in to debt by the rising cost of funerals - a cost for which many local authorities and funeral directors must take responsibility."
He called on the Scottish and UK governments to ensure funding available to make a "real difference" to those struggling, adding: "We invite the Scottish Government to make a determined effort to ensure that the postcode lottery of burial and cremation charges ends and that charges are set at a level that enables a service to be provided without crippling those experiencing poverty at a most difficult time in their life."
