FAQ - Funeral Trusts
What is an Irrevocable Funeral Expense Trust (Funeral Trust)?
An “Irrevocable Funeral Expense Trust” commonly known as a Funeral Trust is essentially a single premium life insurance policy that’s been entirely paid for before it’s issued. The policy is then placed into a trust for safe-keeping until you pass away, it offers tax-free benefits, protection from inflation, and it’s immediately shielded from confiscation by Medicaid, nursing homes, lawsuits, and other creditors.
What are the advantages to prefunding a Funeral Trust?
One major advantage of prefunding a funeral trust is to do so while you are of sound mind and body. Having the resources today to fund the kind of funeral you would like to have in the future will eliminate not having to make decisions under duress during a crisis situation.
- The funeral trust is totally portable and can be used at any funeral home across the United States, selecting a funeral home is optional and it does not commit you to one location.
- The funeral trust offers a higher interest rate than a CD, it can reduce countable resources and qualify applicants for Medicaid, Veterans benefits or SSI and provide peace of mind.
- Benefits are distributed tax free
- Trust funds can be used to pay for permanent cemetery monuments
- Trust funds can be used to pay for travel expenses for family members to attend your funeral
- Assets cannot be confiscated by any nursing home, creditors or lawsuits
- Asset Protection - Your assets cannot be taken by unscrupulous individuals
- Exempt from Medicaid "spend down" requirements should you enter a nursing home
- Funds are insulated against inflation
- No lengthy delays caused by probate court proceedings
- Free from estate taxes
Is committing my final expense funds to a specific funeral home a wise decision?
No. The funeral home where you pre-paid for your final expenses may have gone out of business in several years when your family needs their services.
- Additionally, the person that you placed your trust and confidence in when you made your final arrangements might not be available to carry out your instructions.
- The funeral home where you pre-paid your final expenses might have been sold or merged with a larger, less personal organization. And often these new companies DO NOT honor the terms of your original agreement and refuse to refund your money.
- You may choose to move to a different city or state to retire or just to be closer to other family members. This would make your earlier final expense arrangements obsolete.
- Having a Funeral Trust gives your family liquidity, flexibility, and portability. At death, many estate plans lack readily accessible cash that's needed to pay creditors and funeral expenses. Depending on the circumstances and even the place of death, administrative delays issuing a death certificate can prolong the payout of traditional life insurance policies or other liquid assets for months. Someone must pay the funeral home and wait to be reimbursed. A Funeral Expense Trust will disperse funds within 48 hours WITHOUT a death certificate to any funeral home you choose within the United States.
When applying for Medicaid benefits, is there a look-back period relating to the funeral trust?
NO! The funeral trust is state Medicaid-friendly, this is the only trust that does not have a look-back period. The funeral trust can be set up even if you are already in a nursing home privately paying. In fact, by establishing the funeral trust, you may even save thousands in nursing home costs by reducing your countable assets and qualifying for Medicaid before totally impoverishing your resources.
What are the qualifications to purchase an Irrevocable Funeral Expense Trust?
- Guaranteed issue until age 99
- No underwriting required – Everyone’s approved
- No medical examinations – Everyone’s accepted
- No medical questionnaire to complete
- You cannot be turned down unless you are over 99 years old
What is the difference between an Irrevocable Trust vs. a Revocable Trust?
In this case, an Irrevocable Funeral Expense Trust, once established, cannot be dissolved until the terms of the trust are satisfied. In an Irrevocable Funeral Expense Trust, the person named as the creator or grantor of the trust must pass away before the terms and the assets of the trust can be put into motion. Specifically, the wording of an Irrevocable Funeral Expense Trust states that assets cannot be paid out UNTIL the creator passes away. It is very important that you understand that an Irrevocable Funeral Expense Trust CANNOT be dissolved for any reason whatsoever. This means NO PERSON or ENTITY, not even the person in whose name the Irrevocable Funeral Expense Trust was created, can change it.
Just as the name implies, a Revocable Trust can be changed or revoked at any time after it’s been established by the creator or grantor. It can be changed or cancelled at any time until the grantor passes away.
How can I be sure a Funeral Expense Trust protects my assets from Medicaid?
Each state allows you to have certain types of assets when you qualify for Medicaid. All 50 states allow individuals to have an Irrevocable Funeral Expense Trust in varying amounts and this type of trust is a Non-Countable Asset by Medicaid.
My local funeral home wants me to pre-pay everything. They will "lock in" the cost of my funeral, so why should I place my money in an Irrevocable Funeral Trust rather than “locking in” my costs at the local funeral home?
You're right, most funeral homes want you to pre-pay your funeral and they will "lock in" the price of the funeral in which your family must use their funeral home when you pass away. The funeral home is able to "lock in" the price because they receive the interest growth on the policy and they will keep any amount that’s over and above the cost of your funeral because the funeral home is the beneficiary.
Also, if you pre-plan with a funeral home, you will have to pick out the exact casket and other items that you will have at your funeral. Most people do not wish to go through that disturbing process. Additionally, the make / model of the selected casket may not be available at the time of your death.
With an Irrevocable Funeral Expense Trust you can set aside funds now to take care of your funeral. Any funeral home in the country will accept payment from your Irrevocable Funeral Expense Trust. This will allow your family to select the merchandise and services at the time of need and if any money is left over, your estate or the residual beneficiary will receive the excess money that’s left in the Irrevocable Funeral Expense Trust, NOT the funeral home.
An Irrevocable Funeral Expense Trust is one of the most flexible options for setting aside money for their funeral. More importantly, the money that’s paid out is tax free and your funds are protected from creditors and lawsuits.
I already have life insurance. Won’t it pay for the same thing?
Perhaps. Some modest sized policies, a $10,000 policy for example, may have cash value nearly equal to the face amount and policyholders begin thinking of them as burial insurance. Depending on the circumstances and even the place of death, administrative delays issuing a death certificate can prolong the payout of traditional life insurance policies for months. Someone must pay the funeral home and wait to be reimbursed.
Today you can't afford not to have life insurance and you obviously have tried to protect your family by purchasing a policy. However, when one spouse dies, expenses for the surviving spouse don’t stop. The utility bills keep coming, food bills are ongoing, and medical expenses still must be paid. Most of us purchase life insurance because we want to provide for our family after we're gone. Our families will need all the money they can get just to keep on with daily life. It’s highly likely the reasons you purchased your current policy still hold true today. By taking care of your funeral expenses separately, it makes your life insurance that much more valuable to your family.
Can the money ever be taken out of an Irrevocable Funeral Expense Trust?
Since it is an Irrevocable Trust, the money cannot be accessed after the free look period. That's why we recommend you only put in enough money for your funeral and then maybe some extra money for your family. Then you’re assured cash will available for your funeral until the rest of your needed assets are paid out to your beneficiaries or estate.
Putting funds into an Irrevocable Funeral Expense Trust gets the money out of your estate, so that it will be there for your family for your funeral. After the life insurance policy is assigned to the Irrevocable Funeral Expense Trust it will be protected from creditors, hospitals, nursing homes, Medicaid, lawyers, and estate taxes.
We have money set aside for our funeral! Why should we worry about it?
Most people don’t realize at death, many estates lack readily accessible cash that's needed to pay creditors and funeral expenses. Depending on the circumstances and even the place of death, administrative delays issuing a death certificate can prolong the payout of liquid assets like savings accounts and certificates of deposit for months. Someone must pay the funeral home and wait to be reimbursed. Since you’ve already earmarked cash for your funeral, moving that cash from savings into a Funeral Expense Trust is prudent and guarantees funds will be disperse within 48 hours WITHOUT a death certificate.
What if I may move to another area?
That's not a problem at all. A Funeral Expense Trust is totally portable. You can take it with you wherever you go.
I'm pretty young. Don't I have plenty of time for this later?
Hopefully we will all have the time we need to plan for future events. But unfortunately, many of us procrastinate and things happen that we neither plan for or expect. The major benefit in taking care of this today is that it will provide you and your family with the peace of mind of knowing that your wishes will be carried out.
Can't I invest my money elsewhere for a better return?
You might be right, but if you are looking at setting aside funds for your funeral expenses only as a financial investment, perhaps you are off track. Investments carry with them risk. Will your investment be there when your family needs money? Are the invested funds liquid?
The main reason for establishing a Funeral Trust is to make certain funds will be readily available for your funeral. Along with that, you and your family will have peace of mind. You are transferring funds from one location to another for safety and liquidity protection should the unexpected happen.
Finally, if you set aside money for your funeral expenses in an investment, those funds could get caught up in probate after you pass away. If you only have a will or no will at all, your estate will be subjected to probate costs, attorney and court fees, and lengthy delays. This means that your family will have to come up with the money to pay for your funeral upfront and then wait to cash in that investment after a lengthy and costly probate court proceeding.
I have a CD at the bank for my final expenses; what's wrong with that?
When considering establishing a Funeral Expense Trust rather than leaving your cash in a CD for your funeral expenses you need to also consider, “What if I’m unable to care for myself?”. You could end up in a nursing home or skilled nursing facility, unless you’ve planned for that and purchased long-term care insurance. If not, you will have to spend-down all of your assets, including your CD, leaving only $2,000 in allowable cash before Medicaid will provide long-term care assistance. This scenario will not leave enough money for funeral expenses. The funds you place into a Funeral Expense Trust are protected from Medicaid spend-down rules and will always be available for your funeral.
Why not let my children take care of this for me?
Unfortunately this happens too often. By making and documenting decisions about your funeral early, you can eliminate any future disputes and preserve your family’s relationship. As an added benefit, there won't be a financial burden placed on your family members.