Funeral trusts are used to prepay final expenses and are typically funded with single premium life insurance. Irrevocable funeral trusts can also help you qualify for long-term care benefits through Medicaid. These trusts may be funded with assets that would otherwise be countable resources for Medicaid. Trust assets, including life insurance death benefits, are not countable resources when trying to qualify for long-term care benefits through Medicaid. And you can fund the funeral trust right before entering the nursing home–there’s no “look-back” period for these transfers.
Another advantage of funding your trust with life insurance is that the trust will have no taxable income to report, since life insurance cash values grow tax deferred.
A funeral trust can be a right investment for high net worth persons as well as persons of more modest means. While high net worth people can pay their funeral arrangements without this product and they are not worried about Medicaid, they can still benefit from protecting their assets inside the irrevocable trust that comes with this investment. This investment is great for Middle America as well as high net worth persons. The life insurance application is the same for both types of people; however, the irrevocable trust used for high net worth persons is different from the one for Middle America. An estate planning trust is typically used with high net worth persons rather than a traditional funeral expense trust.
You may invest $50,000 in an estate planning trust while typically a funeral expense trust is limited to just $15,000 in the funeral expense trust. With an estate planning trust funds are normally excluded from the Medicaid spend down after the five-year look back instead of immediately. An estate planning trust normally pays out funds that exceed the funeral costs to a named beneficiary versus being paid to the estate. Since the funds are insurance they are not subject to probate, estate taxes, or creditors.
People make funeral arrangements for peace of mind and to ensure they have made things as easy as possible for their family during their time of need. The funeral trust investment pays the funeral home the very next day and all remaining money goes to a named beneficiary.