The irrevocable funeral trust (IFT) is a trust that is designed to help pay for the funeral and burial costs or the “final expenses” in an individual’s life. But, who can set up an irrevocable funeral trust? The trust is usually set up in advance. The funeral trust provides peace of mind for the creator of the trust knowing full well that after he or she passes away, the funeral and burial expenses will be taken care of. In addition, a funeral trust is also a great Medicaid planning tool. An irrevocable funeral trust helps Medicaid applicants lower their countable assets and meet the agency’s asset limit for qualification purposes.
As of 2022, the average cost for a funeral in the United States is about $10,000, but this also depends on the type of casket and other administrative fees. For most people, this is an exorbitant amount of money to pay for a funeral and, without savings, the burden of paying for the funeral is passed on to the surviving members of the family.
QUALIFYING FOR MEDICAID USING A FUNERAL TRUST
Who can set up an irrevocable funeral trust? Medicaid has a very strict asset limit, and all applicants must meet the eligibility criteria. Individuals who wish to qualify for Medicaid can only have a certain amount of assets to be eligible. For those who have excess assets, one way is to spend down the assets without violating Medicaid rules. This means purchasing an irrevocable funeral trust. With an IFT, the submitted funds do not count as assets for Medicaid’s eligibility criteria.
When applying for Medicaid, it is important to know that the asset limit for 2022 is $2,000 per applicant. This number does vary slightly depending on which state you reside in. Hence, if you are an applicant with assets of $11,000, you would not be eligible for Medicaid. However, if you purchased this type of funeral trust for $10,000, you would have $1,000 remaining in countable assets and be eligible for Medicaid.
One should also know that asset limits depend on marital status. Medicaid considers assets of a married couple as jointly owned and takes into account the value of the joint asset when considering eligibility for Medicaid.
WHAT ASSETS ARE NOT COUNTABLE FOR MEDICAID ELIGIBILITY?
Not every asset is counted towards Medicaid eligibility. Some of these assets include:
- Wedding and engagement rings
- Home furnishings
- The applicant’s residence
- Automobiles
If the Medicaid applicant wants to have the home exempted, he or she must show an intent to return to the residence if not presently living there. In addition, the home equity has to be under a specific value, which is usually between $636,000 to $955,000, depending on the state of residence. The one exception to the home equity interest is California, where you can own a multimillion-dollar home and still be eligible for Medicaid. Finally, the home is exempt from Medicaid asset criteria irrespective of the circumstances or value, if the applicant has a spouse that still resides in the home.
MEDICAID’S LOOK-BACK POLICY
Because of Medicaid’s strict asset eligibility criteria, it is important to understand that one simply can’t give away the assets to become eligible for Medicaid. The agency has a look-back policy to prevent people from giving away their assets just to become eligible for Medicaid. The agency will look back over the applicant’s history between 2.5 to 5 years to ensure that no assets were given away. If the potential applicant is found to have violated this rule, he or she can be banned from applying to Medicaid and even face criminal fraud charges.
HOW A FUNERAL TRUST WORKS
- Who can set up an irrevocable funeral trust? To be Medicaid compliant, the funeral trust must be irrevocable. This means that the funds in the trust cannot be changed, reduced, or canceled; it is a permanent process that cannot be reversed. With Medicaid, the funds held in the funeral trust do not belong to the person applying for the IFT any longer. When the Medicaid beneficiary dies, the funds will be released to pay for the burial, funeral, and other related costs.
- In some states, a Goods and Services statement is required. This statement will itemize a list of all the goods and services for which the individual is paying, the sum of which must match the amount stated in this type of funeral trust. The reason for the Goods and Services statement is to ensure that there is no improper transfer of funds, or, in other words, a violation of the look-back rule. If the individual fails to provide this statement, he or she can be ineligible for Medicaid funding and even be monetarily penalized. As of 2022, Florida does not require the Goods and Services statement, but it is important to speak to someone from Medicaid to be sure.
- The majority of U.S. states require that the state be named as the eventual beneficiary of the trust. What this means is that if there are any residual funds remaining after deducting the burial and funeral costs, the fund will be used to offset the cost of care that Medicaid has already provided to the applicant. This is one way how Medicaid attempts to recover the money it has spent on Medicaid participants.
BENEFITS OF FUNERAL TRUSTS
Some of the benefits of an irrevocable funeral trust include the following:
- To become eligible for Medicaid, the countable assets now become uncountable.
- The IFT can also be purchased for immediate relatives, which also has a spend-down effect on the countable assets, making the potential Medicaid applicant eligible for Medicaid.
- When creating the IFT, there are no penalties from Medicaid.
- One is at liberty to select any funeral home in the nation.
- In most cases, the surviving members of the family do not have to follow any prespecified rules. They can make funeral and burial arrangements as they deem fit and appropriate.
- Once the IFT is established, the survivors of the decedent are not responsible for the funeral and burial costs.
WHAT EXPENSES ARE COVERED BY A FUNERAL TRUST?
The funds in a funeral trust cover a wide range of expenses that include the following:
- Administrative fees for the funeral director and staff
- Casket
- Cemetery fees
- Cost of the burial plot
- Cremation
- Dressing, makeup, hairstyling
- Embalming
- Fee for the clergy
- Fees for usage of the funeral home
- Fees for any musicians
- Flowers, urn
- Hearse or limousine
- Monument or headstone
- Printed notices of the death
- The death certificates
- Sometimes travel expenses for relatives
In some states, the funeral trust funds may not be used to pay for flowers and travel expenses for relatives to come to the funeral.
IS THE FUNERAL TRUST ALLOWED IN FLORIDA?
Except for New York and Michigan, irrevocable funeral trusts, as a means of lowering assets that are countable for Medicaid eligibility, are permitted in all other states.
DOES THE IRREVOCABLE FUNERAL TRUST HAVE A CAP?
In general, there is no limit on the amount of money one can put into an IFT, but you also have to be practical and realistic. The funds can only be used for burial and funeral expenses, and it is not recommended that you put in more than $10,000 because that is the average cost of funerals in the USA. Further, since the trust is irrevocable, once the funds have been placed in the trust, you have no control over them. Even after your death, all residual funds only go back to the government since it is the beneficiary by default.
In most states, you are only allowed to place no more than $15,000 in the funeral trust fund. However, keep in mind, an irrevocable trust can be set up for each member of your family.
COSTS
Depending on the complexity of your case, the lawyer fees to set up an irrevocable funeral trust may vary. In many cases, the service may also provide assistance with Medicaid planning. There may be small additional administrative fees for documentation purposes.
WHAT IS A PRE-NEED FUNERAL CONTRACT?
For those considering an IFT, you should also be familiar with contracts that are termed “Pre-Need.” These are very common in the United States. These contracts are compliant with Medicaid and are also non-refundable, but they are instead created with a funeral home rather than an estate lawyer.
There are many variations of the Pre-Need contracts, and the purchaser can choose from a wide range of goods and services, including a wooden casket, garments, flowers, incense, etc. The cost of the services is paid when the contract is made. The one downside is that the buyer of the contract specified as “Pre-Need,” you are locked into the funeral home/company. If the funeral home were to go bankrupt or out of business, or if the individual passes away at a destination away from the funeral home location, then one has to pay extra money to have the body transferred to another funeral home.
Overall, an IFT is more reliable and flexible since the buyer does not have to stay with a specific funeral home. The only difference is that with an IFT, the final price is not assured. Rather, the funds are placed into a trust and final expenses are paid from the trust after the person dies.
However, there are some people who do see a reason to buy both a contract that is Pre-Need and an IFT. For example, one may want a cremation service that is regularly provided by a contract specified as Pre-Need, but one may also need an irrevocable funeral trust to help defer the cost of a memorial service.
ARE THERE REVOCABLE BURIAL TRUSTS?
The answer to this question is “Yes, In some states.” One is also permitted to have revocable burial funds, but the amount of money in the trust is small. These states do offer an exemption for burial funds, but the funds do not count toward Medicaid’s asset limits.
DO I NEED THE SERVICES OF A LAWYER?
Who can set up an irrevocable funeral trust? It would be advisable to secure the services of an attorney to set up an IFT, as well as any other type of trusts or wills. Estate planning attorneys are exceptional at helping you navigate laws, rules, and regulations that you will need to know about to ensure your choice is the best one for you. Medicaid has many, and often complex, rules, and it is important to know them and be compliant with them or one might risk losing Medicaid eligibility. For example, placing more than $20,000 in a funeral trust does not serve any useful purpose. If the Goods and Services agreement is missing, one might lose Medicaid eligibility.
Elder Law, P.A. specializes in helping you with decision-making and the preparation of all these kinds of documents. Call (561) 588-7512 to speak with a knowledgeable representative today. Schedule an appointment free of charge to discuss your needs.
