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An irrevocable funeral trust is one legal and financial choice for pre-funding funeral and burial expenses. Once established, the terms within this type of trust cannot be changed; therefore, this is a secure option that is extremely effective in both Medicaid planning and making sure final expenses are covered, leaving no financial burdens on loved ones. We shall, therefore, examine in this paper the pros and cons and special instances in which IFTs can be made use of, besides explaining how one works and how a person can create an IFT.

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What is an Irrevocable Funeral Trust?

An irrevocable funeral trust is a special kind of trust fund, uniquely suited to paying for funeral expenses. Unlike the revocable one—where the terms can be changed or the trust itself dissolved—an irrevocable trust is fixed right from the creation moment. What this really means is that the funds you put into the trust are irrevocably and forever devoted to paying for your funeral and burial expenses, and may not be used for other purposes.

Why would you create an Irrevocable Funeral Trust?

Medicaid Eligibility

The most common reason that anyone would establish an IFT is to protect one's assets and become eligible for Medicaid. The Medicaid program has some very restrictive limits on the amount of assets one can possess, but an IFT offers you a legal way of reducing countable assets. Once money has been placed in an IFT, it no longer counts towards Medicaid's limit on assets, making eligibility for nursing home care and other benefits far more attainable.

Making Sure the Funeral Expenses Are Covered

An IFT makes sure that funeral and burial costs are pre-paid, so your family is not stuck with potential unexpected costs when the time comes for mourning. You are assured that the necessary arrangements and payments have been taken care of in advance.

Protection from Creditors

Because money held in an IFT is strictly for funeral purposes, in most cases, that money is exempt from creditors. This implies that the money you put aside cannot be claimed to pay other debts.

Pre-Planning and Control

Establishing an IFT lets you make some real decisions about your funeral and burial—from which funeral home to utilize, the type of service, right down to the choice of casket or urn. This will grant you complete certainty that your last wishes are accomplished just as you wanted.

Benefits of an Irrevocable Funeral Trust

Medicaid Planning Tool

Because IFTs do not count as a resource for purposes of Medicaid qualification, they become a strategic tool to bring one's resources below the threshold needed to qualify for Medicaid. This helps in that area involving people needing long-term care with too many assets to qualify for Medicaid.

Eliminates Financial Burden on Family

A funeral tends to be an expensive affair and sometimes runs into the thousands of dollars. When you pre-fund these expenses, you eliminate financial stress from your family members who otherwise may struggle to afford the final arrangements for you.

Flexibility in Planning for Funerals

Through an IFT, you can pre-state specific funeral arrangements, such as what kind of service, whether to be buried or cremated, or other particular plans you may have. This will guarantee that your funeral is conducted as you would have wished.

Protection from Creditors

Money within an IFT is usually protected from creditors, which means it will be available to pay for funeral expenses and will not be allowed toward debt settlements or other liabilities.

Possible Tax Advantages

The funds you contribute to an IFT are sometimes deemed tax-deductible, since it does not constitute a part of your estate that is subject to tax. This lessens the overall tax burden of your estate.

Disadvantages of an Irrevocable Funeral Trust

Irrevocability means, quite to the contrary of the name, an irrevocable trust is one in which no changes or dissolution can occur, let alone amendments. That means if you put money into the trust, you cannot access it again for whatever other purposes, not even in cases of emergency.

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Use of Funds Restrictions

Funds held in an IFT are to be used solely to cover funeral and burial expenses. If the expenses are less than deposited into the trust, unspent funds cannot be used for alternative purposes, thus over-funding the trust.

Overpaying

If the level of payment for your funeral is less than what you have in trust, extra cash may be non-refundable or non-transferable. This might ultimately lead to a careless waste of money that could be avoided with proper planning.

State Regulations

The amount you can put into an IFT varies by state, and many have strict limits. It's useful to know about your specific state so that your trust is set up correctly and within the legal limit.

Complexity and Legal Fees

Setting up an IFT is complex and will usually require the services of an attorney or certified financial planner. Legal fees, combined with administrative costs, make the process more expensive than it would be to simply save for funeral expenses in other ways.

How to Establish an Irrevocable Funeral Trust

Naming a Trustee

The trustee can be a funeral home, a bank, or any other party that you trust. This party will manage the trust money or funds in accordance with the terms you set.

Naming the Terms

Clearly outline how the money is to be disbursed. This involves describing your funeral arrangements, for instance, the kind of service, in-ground burial, cremation, along with other preparations.

Fund the Trust

Place the money you would like to use toward your funeral expenses into the trust. Most states have limits on the amount that can be placed within an IFT; most are between $5,000 to $15,000.

Sign the Agreement

Sign the trust agreement. This makes the trust a legally binding document.

Keep Records

Keep a good record of the trust agreement and funding. This will be important for Medicaid to determine your eligibility and will be helpful for your family to understand how the trust works.

What Expenses Are Payable by Irrevocable Funeral Trust?

The following are some of the funeral-related expenses payable with an IFT:

• Professional Services of a Funeral Director: Arranging the actual funeral service, completing any paperwork, and handling general correspondence.
• Casket or Urn: Providing your casket or urn, according to your own choice.
• Gravesite or Niche: Buying a gravesite, crypt, or niche that will house the urn.
• Preparation of Body: Fees for embalming, casket dressing, and cosmetology for viewing.
• Transportation Costs: Conveyance of the body to the funeral home, gravesite, or crematorium facility.
• Facility Costs: Funeral home facilities and services for the ceremony and visitation.
• Grave Marker or Headstone: Selection and placement of the grave marker or headstone.
• Obituary Notices: The cost of publication of obituary in newspapers or online.
• Flowers and Memorial Items: The expenses related to flowers, guest books, and memorial cards.
• Memorial Service/Reception: Reception expenses: food and hall rental.

Medicaid and Irrevocable Funeral Trusts

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Medicaid is a joint federal and state program that covers health care for people with low income and few assets. The biggest headache in trying to qualify for Medicaid, though, is generally going to be financial eligibility. Applicants are allowed, under the law, to lower their countable assets by putting money into an IFT in order to qualify for Medicaid benefits, such as long-term care.

As such, for Medicaid eligibility purposes, the money placed inside an IFT are exempt assets, and as such, are not counted toward the asset threshold. This can be a really effective tool for individuals who have to spend down their assets in order to qualify for Medicaid. Of course, in practice, it does require that one set up the trust properly and within required state regulations so that the money placed inside that trust will be considered exempt.

Frequently Asked Questions About Irrevocable Funeral Trusts

Can I Change the Terms of an IFT?

No, once an IFT is established, it cannot be changed or revoked. The terms are fixed, and the funds can only be used for the specified funeral expenses.

What if I relocate to a different state?

As a rule, IFTs are portable, meaning they may be applied in any state, but the amount allowed and specifics may vary, so check the rules in your new state.

What if the trust funds exceed funeral costs?

Any excess may go toward a number of things, depending on the state and the language in the trust. They may revert to the state or go back to the estate, but often they may be used for additional allowable expenses.

Are There Any Alternatives to an IFT?

Yes, there are alternatives: revocable trusts, payable-on-death accounts, and traditional savings accounts. Each has different positive and negative attributes, so consulting with a financial advisor will allow you to make a decision that is right for you.

Is an Irrevocable Funeral Trust Right for You?

Whether or not an IFT is right for you depends on your current financial situation, including your Medicaid eligibility, and your personal preferences regarding funeral pre-planning. Here are things to consider:

• Current Asset Levels: If your assets exceed the Medicaid limit, an IFT can be a good strategy to reduce your countable assets.
• Long-term care needs: If you may need to become qualified for Medicaid to cover long-term care, an IFT can be part of an overall strategic plan that puts you in a good position.
• Want control of the funeral arrangements: With an IFT, you are able to pre-arrange and pre-fund your funeral arrangements to make sure your wishes are granted.
• Family Reasons: If you want to take the financial burden and decision-making away from your family, then an IFT simply takes care of everything ahead of time.

Why would you create an irrevocable funeral trust?

Medicaid Eligibility: One of the primary reasons individuals create an IFT is for Medicaid planning. Medicaid limits assets and income strictly, and an IFT may be a helpful tool in reducing your countable assets to allow you to qualify for benefits like nursing home care.

If money is transferred to an IFT, those assets are not looked at when determining the Medicaid asset threshold.

IFT Funds Funeral Expenses: An IFT funds your funeral and burial expenses fully, with the assurance of no out-of-pocket expenses on your family. You are secure in knowing your final expenses have been covered.

Medicaid and Irrevocable Funeral Trusts

• Medicaid is a joint state-federal program to pay for health care of individuals with low incomes and limited resources. In order to qualify for Medicaid, stringent financial eligibility requirements are imposed on individuals through limits on both income and assets. If your assets exceed these limits, you may be ineligible for any Medicaid coverage. 
• Transferring money to an IFT can lower countable assets so you could be more qualified for Medicaid benefits, such as nursing home care.
• In most states, to be eligible for Medicaid, an individual can have no more than approximately $2,829 income per month and countable assets no greater than $2,000. If you fund an IFT, you can arguably reduce your countable assets sufficiently to meet your eligibility for Medicaid to cover long-term care or nursing home services.

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Final Thoughts

An irrevocable funeral trust is a helpful way to pre-plan funeral expenses within the context of Medicaid eligibility. Understanding the advantages and limitations of an IFT will provide a very informed means of pursuing your financial and personal goals.

Setting up an IFT requires careful planning, considering both the legal and financial repercussions. In addition, it is a good idea to confer with an elder law attorney or a financial planner who has experience in Medicaid planning, as he or she will be in the best position to provide insight and assistance in the often confusing process of setting up an irrevocable funeral trust—the best way for you to secure your financial future and provide peace of mind for both yourself and your loved ones.

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