January 18, 2024
Should I Use an Irrevocable Funeral Trust for Medicaid Planning?
There are many ways to plan for funeral costs that every family will eventually need to pay for a loved one. Some people use life insurance policies to plan for funeral costs. However, life insurance policies with cash values are countable assets for Medicaid eligibility. The same applies to annuities, savings accounts, CDs, mutual funds, retirement savings, checking accounts, and other financial accounts that you may own when you apply for Medicaid.
Therefore, if you want to pre-pay funeral expenses and spend down some of the assets that are considered a countable resource for Medicaid, you may want to consider an Irrevocable Funeral Trust.
What is an Irrevocable Funeral Trust?
A trust is a legally binding agreement whereby a grantor (the person creating the trust) sets aside money or property for a specific purpose. The grantor appoints a trustee to manage the trust, according to the terms in the trust. In the case of a funeral expense trust, the grantor sets aside money for the sole purpose of paying his or her funeral costs upon death.
An irrevocable trust cannot be changed or dissolved for any reason. Because the trust is an irrevocable trust, the money used to fund the trust does not belong to the grantor. The money within the trust cannot be accessed for any other reason than to pay the grantor’s funeral expenses.
What are the Benefits of an Irrevocable Funeral Trust?
An Irrevocable Funeral Trust can be useful during Medicaid planning for several reasons. In addition to Medicaid planning, an Irrevocable Funeral Trust also offers several other benefits that make it a good choice for pre-paying funeral costs.
Some of the benefits of an Irrevocable Funeral Trust include:
- An Irrevocable Funeral Trust, if set up correctly, is not countable as an asset for Medicaid eligibility.
- Creating an Irrevocable Funeral Trust does not violate the 60-month lookback period for Medicaid eligibility. Therefore, you can use the trust to reduce your countable assets for Medicaid eligibility.
- Family members have a dedicated source of funds to pay funeral expenses.
- Funds within an Irrevocable Funeral Trust are protected from creditors.
- Trusts are not subject to probate.
- You are not required to commit to a certain funeral home. Prepaid funeral contracts contain various terms that you cannot change once the contract is signed. An Irrevocable Funeral Trust simply sets aside money for funeral costs. Your family is not limited to a specific funeral service provider.
- An Irrevocable Funeral Trust can be used to pay other expenses related to a funeral in addition to the typical costs of cremation or burial. For example, you can use the funds to pay the travel expenses of family members to attend the funeral.
- Irrevocable Funeral Trusts may be purchased from an insurance company or created by an individual. You have several options available to you when creating the trust.
Should I Contact a Michigan Medicaid Planning Attorney About a Funeral Trust?
If you are considering an Irrevocable Funeral Trust, we strongly encourage you to contact one of our Michigan Medicaid planning attorneys. A funeral expense trust may not be the best option in every situation. In addition, if a funeral trust is not drafted correctly and funded correctly, it may be counted as a Medicaid asset. Some companies that sell Irrevocable Funeral Trusts advertise these trust as Medicaid compliant when the trusts are not Medicaid compliant.
It is always best to discuss your options with an experienced Michigan trust and estate attorney before taking any action, especially regarding an irrevocable trust. Because you cannot change an irrevocable trust, you need to ensure that you have taken all the correct steps before you sign an agreement to create the trust.
For more info visit, https://michiganestateplanning.com/
or give our office a call at 844-885-4200.