What is the difference between a pre-paid funeral and a funeral expense trust from Medicaid’s perspective? I am getting conflicting information when talking to the sales person. Can I purchase either and still qualify for Medicaid?
Pre-paid or pre-need funeral contracts and funeral expense trusts (also called irrevocable funeral trusts or IFTs) differ in two main ways.
1. A pre-paid funeral is a legal agreement between a Medicaid beneficiary and a specific funeral home, while a funeral expense trust earmarks funds for one’s funeral / burial with no restriction as to which funeral home they can use. Note that with pre-paid funeral contracts, there is some risk to the buyer in the event that the funeral home goes out of business prior to his / her death.
2. With pre-paid funeral contracts, the individual specifies the goods and services for which he / she is paying and makes all arrangements in advance, essentially locking in the price. With a funeral expense trust, money is set aside for the purpose of one’s funeral / burial and the family uses the funds to make the arrangements following the death of the individual.
Fortunately, both pre-paid funeral contracts and funeral expense trusts allow a way for Medicaid applicants to convert countable assets into non-countable ones for Medicaid eligibility purposes. Stated differently, purchasing a pre-paid funeral contract or a funeral expense trust is a way for persons to lower their countable assets to become asset eligible. Further lowering countable assets, a pre-needs contract or funeral expense trust can be bought for non-applicant spouses.
In order for these two types of legal agreements to be Medicaid-compliant and exempt from countable assets, they must be irrevocable. This means that once the contract / trust has been created, it cannot be cancelled or altered. In other words, the Medicaid beneficiary no longer has access to these funds and they cannot be spent on anything other than one’s funeral. Furthermore, with IFTs, the state usually has to be named as a beneficiary in the event that there are any remaining funds after paying the costs of one’s funeral and burial.
All states allow either a pre-needs funeral contract or an irrevocable funeral trust, and some states allow the purchase of both, for Medicaid eligibility purposes. However, some states do limit the amount that can be used for these purposes. Limits vary by state. To see limits for IFTs by state.
Medicaid-compliant pre-paid funeral contacts and funeral expense trusts (when established correctly) do not violate Medicaid’s look back rule, a period of 60-months (30-months in California) in which Medicaid reviews all asset transfers immediately preceding one’s Medicaid application date.
Given the rules surrounding pre-paid funeral contracts and funeral expense trusts, and how these rules differ based on the state in which one resides, it is suggested that one contact a professional Medicaid planner for assistance when considering this option. If done incorrectly, it can be cause for Medicaid ineligibility.