Funeral Trusts: What is an Irrevocable Trust?

Did you know you can use an irrevocable funeral trust to protect your burial and cremation funds?

Arranging for a funeral is not always something that takes place in the moment of an immediate-need situation.  Frequently, it can be years away when a family is faced with the actual costs of a funeral, but have a need to protect those funds now.  For instance, when a loved one is diagnosed with the need for long term care, often the family is faced with huge costs associated with nursing home care.  With those costs ranging from $4,000 to over $10,000 per month, a typical family’s nest egg could be gone within a year.  While Medicaid could be an option, it requires that individuals ‘spend down’ their assets to a very small amount (under $1,500).  How does one ensure they will have the assets necessary to pay for funeral costs in the future?

An irrevocable funeral trust can be an important tool when planning for long term care.   In most states, individuals can place up to $15,000 into an irrevocable funeral trust to pay for later funeral (burial and cremation) costs.  This is one of the very few ways to protect your hard earned funds from a Medicaid event. In fact, individuals applying for Medicaid are subject to a five year ‘look-back period.’  This look-back period means that Medicaid applicants would have had to give away assets or transferred funds more than five-years prior to their needing Medicaid assistance.  If you have improperly transferred funds during the past five years, the government will not approve your application or will impose a large penalty.  But, assets that are deposited into an irrevocable funeral trust are not subject to the five-year look-back period.  This means, you can now protect the funds that will be used to pay the costs of that funeral for your loved one needing long term care.

But what about the rest of your family’s nest egg funds?  Some, if not all, of those funds can also be protected using irrevocable funeral trusts for not only the individual needing long term care, but also for his or her spouse, each of their children, and, in some states, the spouses of the children.   Here is an example of just how beneficial these irrevocable funeral trusts can be: The father needs long term care and wants to apply for Medicaid.  He uses his spend down funds to pre-pay for an irrevocable funeral trust for himself in the amount of $15,000.  He also pre-pays his spouse’s irrevocable funeral trust with $15,000, and he puts $9,000 into irrevocable funeral trusts for each of his five children.  By taking these steps, he has protected his funeral costs and family burial spaces, and, more importantly, he did so within the Medicaid guidelines.  The family has also protected $75,000 of their nest egg, creating a legacy gift that will be remembered for years to come.

In this type of crisis planning event, the question is not if you will need to spend most (if not all) of your assets on long term care costs, but how you can spend them.  The choice is to spend all assets on long term care monthly costs or to protect a portion of those assets for the family using irrevocable funeral trusts.

Funeral Trusts also have other benefits including:

• Tax-Free Status: The growth in the policy is not taxable.
• Portability: Irrevocable funeral trusts may be used with any funeral home in the USA.
• Peace of Mind:  Your funds will be there when your family needs them.
• Inflation Protection:  Fixed interest growth helps protect against inflation.
• Medicaid Friendly: Irrevocable funeral trusts pass the five-year look-back test.
• Quick Set-Up: The legal paperwork can be set up in about an hour.

Each state has different rules when applying for Medicaid.  Consult with a professional that is licensed to provide information and plans for your specific state.

This article is part of the eFuneral Resource Center and was written by Michael A. Whitaker, CLTC, an accomplished Cleveland, Ohio Insurance Agent that owns Premier Solutions Group, LLC. Mike has years of experience in long term care and final expense planning, with hundreds of satisfied clients. He holds licenses in five states and has spoken across the country about irrevocable funeral trusts, veterans benefits and protecting assets from a nursing home event. You can find more information by visiting http://premiersolutionsgrp.com/Clients/funeraltrusts.html.  Those thinking about end-of-life should visit eFuneral.com for help researching, planning, and arranging a wide variety of funeral-related services.