Revocable v. Irrevocable Funeral Trusts

A funeral trust is a legally binding agreement created to set aside funds for future funeral expenses. Funeral trusts help individuals pre-pay for funeral services, ensuring their final wishes are met and reducing the financial burden on family members. Funeral trusts are commonly used in estate planning, especially for individuals planning for Medicaid eligibility. A funeral trust allows pre-payment of funeral and burial costs, sometimes locking in today’s prices to avoid future cost increases. It also gives control over funeral details, including burial or cremation preferences, type of casket or urn, and specific service arrangements.

A revocable funeral trust allows the trustor to retain full control over the assets within the trust. The trustor(grantor) can make changes, modify terms, add or remove beneficiaries, or cancel the trust entirely. Revocable trusts allow for flexibility. The trustor can adjust the trust at any time, including altering funeral plans or withdrawing the funds. In addition, funds in the trust remain the property of the trustor, meaning they have direct access to the money if needed.

Although a revocable trust allows for changes in personal circumstances, such as moving to a different funeral home or changing service details and provides peace of mind that funds are accessible, there are some drawbacks. Because the assets in a revocable trust are considered countable by Medicaid, they can impact eligibility for long-term care benefits.  The funds are also subject to creditor claims, lawsuits, and estate taxes.

An irrevocable funeral trust cannot be altered, revoked, or dissolved after it is created. The trustor(grantor) relinquishes control over the assets, which are strictly reserved for funeral expenses. Once the trust is established, the funds cannot be withdrawn or repurposed for any reason other than funeral expenses.

There are some financial benefits of irrevocable trusts. Funds in an irrevocable trust are considered exempt assets and do not count toward Medicaid’s asset limit, making it an effective tool for Medicaid planning. Irrevocable funeral trusts are designed to meet Medicaid rules, helping individuals reduce their countable assets and qualify for Medicaid long-term care. In addition, funds in the trust are guaranteed to be used for the trustor’s funeral, ensuring their wishes are met without placing financial strain on family members.

Irrevocable funeral trusts are commonly used in Medicaid planning to reduce an individual’s countable assets to qualify for Medicaid. These trusts are exempt from Medicaid’s 60-month look-back period, meaning creating the trust won’t trigger penalties or ineligibility for Medicaid. Most states allow individuals to set aside up to $25,000 dollars per trust for funeral expenses, ensuring compliance with Medicaid asset limits. It is important to avoid some common pitfalls for irrevocable funeral trusts.  You must avoid exceeding the state limit for funeral trust funding which can result in disqualification from Medicaid or require additional asset spend-down strategies. You must also ensure that the trust is legally compliant and structured to meet Medicaid requirements. Working with an elder law attorney or Medicaid planner is recommended.

Irrevocable funeral trusts offer flexibility in choosing funeral service providers, unlike some pre-need funeral plans that may be tied to a specific funeral home. This is especially beneficial in case a funeral home goes out of business, or the trustor moves to another location. Irrevocable funeral trusts also can cover a variety of costs, including:

Funeral services (e.g., embalming, cosmetology)

Burial or cremation

Caskets or urns

Transportation services (e.g., hearse, limousine)

Cemetery services, headstones, and burial plots,

Obituaries, death certificates, flowers, and travel expenses for family members.

Deciding between a revocable and irrevocable funeral trust depends on your financial situation, long-term care plans, and Medicaid eligibility requirements. For those seeking Medicaid eligibility, irrevocable funeral trusts are a vital tool for reducing assets and ensuring future funeral expenses are covered. Revocable funeral trusts offer greater flexibility but may not provide the same Medicaid or asset protection benefits.