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Funeral trusts can protect countable Medicaid assets, prevent family hardships

by Maurice Draine | Contributor
June 30, 2020


Funeral trusts protect the countable assets of those seeking long-term care assistance through Medicaid while providing sufficient funds to cover your final expenses.

Most of us prefer to keep our money in the bank instead of funding our final expenses. However, this lack of preparation leaves you and your family vulnerable to potential hardships down the road. If you need long-term care and your financial resources are running low, you may require assistance from Medicaid to pay for a nursing home.

Any unprotected monetary assets and estate will be “spent down” or used to pay for your care if it exceeds the limits of Medicaid. Many times, financial resources are not sufficient to cover funeral costs afterward. Unfortunately, this situation can result in family members of the deceased accumulating debt to pay for these expenses. A funeral trust ensures that money is set aside to pay for your funeral’s anticipated cost, protecting loved ones when you depart.

What is an irrevocable funeral trust?

An irrevocable funeral trust is an insurance product that allows you to prepay your burial or cremation services and related costs in advance without the necessity of committing to any particular funeral home, which may or may not still be in business by the time its services are needed. Your family then will have funds immediately available to pay for your final expenses, including costs for loved ones to attend your services, without enduring a financial hardship or cashflow burdens.

A key feature of an irrevocable funeral trust is that it doesn’t count toward your total assets, enabling you to receive Medicaid benefits while setting aside enough funds to cover your final expenses. An irrevocable funeral trust helps you qualify for long-term care through Medicaid. Funding through Medicaid is only available to individuals whose assets don’t exceed the limit, typically around $2,000.

An irrevocable funeral trust does require the purchaser to give up control of the assets to the insurance company, which acts as trustee and distributes the proceeds upon death. You can’t change or cancel the contract, but these funds are protected from Medicaid review and won’t affect your eligibility to receive benefits.

How funeral trusts protect family assets

Over half of people over 65 will need long-term care services at some point in their lives. However, few are prepared for the financial implications. By setting up an irrevocable funeral trust, you can protect your family members from the potential monetary hardship of having to pay for these expenses.

Let’s consider the following example. Evelyn, 74, has a $12,000 savings account. She gives her son, Mark, 49, the certificate of deposit (CD), that states the benefits are payable-on-death (PoD). Mark files the documents away, feeling confident that money is set aside for his mother’s funeral expenses.

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However, Evelyn’s health takes a turn for the worse, and she requires long-term assistance at a nursing home. She applies for Medicaid to pay for her care, but is told that she has to close out the CD as part of the “spend down.” After several years, Mark’s mother passes away, and the funds from the initial savings account are gone.

Mark is unable to afford the $12,000 funeral costs by himself and has to use credit cards and loans to cover the expenses. As a result, his FICO score suffers a considerable drop. As an additional burden, Mark has to work years to pay off the debt.

This circumstance could have been avoided if Evelyn’s money had been protected in an irrevocable funeral trust. Her savings wouldn’t have counted toward the Medicaid limit, and the funds set aside for her final expenses would have remained untouched. Mark’s credit score would have remained stable, and he would have been able to continue pursuing his financial goals.

How to set up a funeral trust

One key step involves finding out your state’s specific laws regarding funeral trusts. For example, a few states don’t allow individuals to immediately protect their Medicaid eligibility through irrevocable funeral trusts. But some states allow up to $15,000 to be transferred without penalty into a funeral trust. Other regions may have varying implications and limits. You may consider contacting your local Medicaid office to find out more about account requirements.

Alliance America can help you take control of your final expenses and establish a funeral trust that protects your hard-earned assets. You can fund your account in full or over time using one of the following methods.

  • Cash
  • Life insurance
  • Savings bond
  • Certificate of deposit
  • Payment plan

You can start a funeral trust by yourself. Alternatively, a family member such as your child, spouse, parent or sibling may set up funds on your behalf.

Typically, there are no underwriting requirements or medical exams. However, some states may require you to pay an administrative fee.

Setting up a funeral trust is relatively straightforward and can protect your family’s financial assets if you require long-term care. If you apply for Medicaid, any money you saved for your funeral in a regular savings account will likely go toward paying for your care expenses. Funeral trusts offer a form of asset protection that makes these funds off-limits to Medicaid. Should you need to enter a nursing home facility, the limited funds you saved for your funeral will be protected.

Alliance America can help

Alliance America is an insurance and financial services company. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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