Qualifying for Medicaid with an Irrevocable Funeral Trust

Page Reviewed / Updated - May 2018

Definition: Irrevocable Funeral Trusts

Prior to a discussion of how Irrevocable Funeral Trusts (I.F. Trusts), also called Irrevocable Funeral Expense Trusts (IFET), can be used to help qualify for Medicaid, it is helpful to understand exactly what defines an irrevocable funeral trust. A trust is a legal agreement in which an individual (called the Trustmaker) sets aside a certain amount of money for a specific purpose or person. In this case, the purpose of the trust is for funeral costs. In doing so, the money set aside is no longer considered to belong to the Trustmaker, provided the trust is “irrevocable”.  Irrevocable means the trust cannot be changed, reversed, or dissolved for any reason.

 Establishing an irrevocable funeral trust can help families qualify for Medicaid. As it is a trust and is irrevocable, Medicaid does not count it as an asset for eligibility purposes. Nor does creating such a trust violate Medicaid’s 60-month past asset transfer (“look-back”) rule. 

There is considerable confusion about irrevocable funeral trusts because there are identical products with different names, and there are similarly named products with a similar purpose, which are critically different with regards to Medicaid eligibility. IFTs, Irrevocable Burial Trusts, and IF Trusts are identical products. Pre-paid funeral plans, pre-need funeral plans, life insurance for funeral expenses, and final expense insurance are the names of similar products, which may or may not be legally different.


Irrevocable Funeral Trusts Impact on Medicaid Eligibility

Aside from care needs, Medicaid considers three areas related to the applicant's finances: their monthly income, their countable assets, and their asset transfers as far back as 60 months preceding application. Generally speaking, in 2018, the applicant's monthly income cannot exceed $2,205. The value of their countable assets cannot exceed $2,000 (excluding home and vehicle), and they must not have made any asset transfers (to their children, for example) within the previous 60 months. (One exception is California, which has just a 30-month look-back period for asset transfers). Applicants with assets over the limits mentioned above are typically denied Medicaid coverage, and families are left to pay the significant cost of nursing home or other care expenses out-of-pocket.

Purchasing an irrevocable funeral trust allows an applicant to pay in advance for an expensive item for which they or their family will have to pay for eventually, and by doing so, they reduce their countable assets and can qualify for Medicaid. An irrevocable funeral trust, because it is a trust and irrevocable, is not counted as an asset by Medicaid. Nor does its purchase violate the 60-month asset transfer rule, or in California, the 30-month asset transfer rule.

 Not all funeral trusts are considered to be Medicaid exempt assets.

Almost all states impose a limit on the amount of money that can be placed in a funeral trust. These limits are approximately equal to the average cost of a funeral and range from $5,000 - $15,000 per spouse. This means single persons with approximately $7,000 - $17,000 in countable assets, or married couples with approximately $14,000 - $36,000, who would otherwise not qualify for Medicaid, can do so by purchasing an irrevocable funeral trust(s). For persons whose countable assets exceed these amounts, a funeral trust can still be used, but they may need to combine it with other techniques to lower their countable assets to a Medicaid-compliant level.

Note a different trust exists to help individuals whose incomes exceed the Medicaid limit. Read about Qualifying Income Trusts here.


Additional Benefits of Irrevocable Funeral Trusts

Other than helping individuals become Medicaid compliant, there are additional benefits to irrevocable funeral trusts. One of which is that they enable families to pre-pay for the costs of a funeral without having to commit to any particular funeral home. It is not uncommon for funeral homes to go out of business and families who have pre-paid directly to that funeral home to lose their money.

A funeral trust also allows a family to plan for a funeral without having to plan the details of the funeral, which is an activity that many find distasteful. However, should a family think differently regarding funeral planning, there is nothing in a funeral trust that would prevent them from planning the details.

An expense of funerals, which is not considered by many but is often substantial, is the travel cost for family members to attend the funeral. An additional benefit of funeral trusts is that they can be used to cover this expense. See a complete list of eligible expenses here.

Irrevocable funeral trusts are relatively simple to set up and are not time consuming to do so. However, if not set up correctly, one may violate Medicaid’s look-back period, resulting in a period of Medicaid ineligibility. For this reason, it’s highly suggested one contact a professional Medicaid planner for assistance prior to setting up an irrevocable funeral trust.


When Not to Purchase an Irrevocable Funeral Trust

Though beneficial for many families, there are legitimate reasons and situations when the purchase of an irrevocable funeral trust does not make economic sense.

First and foremost, it is important to remember that the creation of an irrevocable funeral trust is irrevocable. It cannot be reversed, dissolved or used for any purposes other than for the individual's funeral. This must be considered prior to making the decision.

 When an individual is not seeking to qualify for Medicaid, purchasing an irrevocable funeral trust is probably not the best financial decision.  There are other methods of pre-paying for a funeral, such as final expense insurance, which might be a better solution from a financial perspective.

Finally, it is not necessary to purchase a pre-built trust from an insurance company. Should the individual have a friend or family member who is an attorney with expertise in establishing irrevocable trusts that are Medicaid compliant, one might choose that route instead. Particularly, if they can provide free or inexpensive assistance and can create the trust without violating the look-back penalty. 


How to Buy an Irrevocable Funeral Trust

 Step 1 - Begin and complete the process before applying for Medicaid.

Step 2 - Determine if, and by how much, the Medicaid applicant's resources are over the Medicaid asset limit in their state. Most states limit the value of funeral trusts to $15,000. Assets over that amount may also need to be converted to non-countable assets through other means.

Step 3 - Determine approximately how much the funeral will cost. One does not want to over-fund their funeral trust, as proceeds remaining are subject to recovery by the state Medicaid office.

Step 4 - Make absolutely certain Medicaid will not consider the funeral trust one is purchasing a countable asset. Salespersons have been known to claim their funeral trusts are Medicaid exempt, either due to ignorance or by intent, when they are not.

Step 5 - In some states, a funeral director will be required to justify that goods and services are in line with typical funeral costs. Any certified funeral director can provide this service.

Step 6 - Maintain the Irrevocable Funeral Trust paperwork and apply for Medicaid.


Eligible Funeral Expenses Under an Irrevocable Funeral Trust

Irrevocable funeral trusts can typically be purchased for any value set by the buyer. When making a purchase decision it is important not just to consider Medicaid eligibility and state limits but also to consider the approximate cost of a funeral. In doing so, it is helpful to recognize the wide range of funeral related services that can be paid for by an irrevocable funeral trust.

-Caskets / Vaults
-Hearse transportation
-Car and limousine services
-Funeral direction services
-Dressing and cosmetology
-Funeral home services
-Burial plot
-Cemetery services and fees
-Obituary notices
-Death certificates
-Transportation for family members
-Memorial following the burial


Final Expense Insurance vs. I.F. Trusts

Final expense insurance generally serves the same purpose as irrevocable funeral trusts, that is to set aside money for an individual's funeral. However, they are several key differences. Final expense insurance builds value over time, which is a positive feature except that for Medicaid eligibility purposes, this insurance is considered a countable asset.