Consider Funeral Trusts as a Part of Your Estate Planning
If you are 65 or older, blind or disabled, and have the means to set aside some funds, we recommend that you consider setting up a pre-paid funeral trust with a reputable funeral home of your choice. A funeral trust is an agreement with a funeral home or cemetery who utilizes a pooled income fund to hold assets you set aside to cover future funeral and burial costs. You can fund the trust with cash, bonds, or life insurance. The contract allows you to “lock in” future funeral or burial services costs, adjusted to the time when it is expected you will need the trust funds. It allows you to alleviate any burden on your loved ones to decide upon and fund critical end of life decisions after you have passed, because you will have taken care of all of this already, according to your wishes.
A funeral trust can be revocable (changed and revoked by the person who sets it up at any time) or irrevocable (generally you can’t get your money out except to pay for funeral services). Because the funds you set aside go into a pooled income trust, they can accumulate some interest over time. Another advantage of an irrevocable funeral trust is that it can help one qualify for Medicaid. As an irrevocable trust, the funds put into it will no longer be deemed in a person’s name and will not create a past asset transfer that violates Medicaid’s “5-year look-back” rule.[1] An irrevocable funeral trust is still very flexible, however. An individual (or his/her legally responsible relative following one’s death) may change the choice of funeral home, funeral director, undertaker or cemetery following the execution of a funeral trust, but just may not revoke the agreement entirely. We also recommend individuals select an independent trustee (other than the funeral home) at the time of setting up a trust to allow for auditing the actual funeral bill for reasonableness and pay any excess to the family, when the time comes.
Yet another positive about funeral trusts that many people don’t know is that you may also establish a qualifying, irrevocable funeral trust for someone in your “immediate family” and still not create a penalizing asset transfer according to Medicaid eligibility rules. Immediate family members have been defined to include: parents, adoptive parents, a spouse, children (minors or adults, including adopted children and stepchildren), and brothers and sisters (including step-siblings and adopted siblings). The spouse of each of these relatives is also included in this definition, provided the individual is still married to the relative at the time an individual applies for Medicaid.[2]
A few other details about funeral trusts desired to support Medicaid eligibility clarify the legitimate expenses of trust funds as follows:
- Burial space items to include: a casket, urn, mausoleum, vault, headstone, burial containers and headstone engraving, a burial plot or gravesite, the cost of cremation or the opening and closing of a gravesite, and the cost of a perpetual care contract for a gravesite.
- Non-burial space items to include: embalming/cosmetology and burial clothes, funeral transportation (hearse, limousine, out of town shipping), use of funeral home facilities (for services, visitation, or a wake), clergy services, death notices, and flowers.
Items which may not be included in a funeral trust for Medicaid eligibility purposes include: food, lodging or transportation expenses for family, friends or guests. There is no limit on the cost of the items, but their cost must match the fair market value to qualify.
Kiley, Kiley & Kiley can
assist you in your estate planning. We
can help calculate eligibility for Medicaid and suggest ways, like the use of
funeral trusts to allocate excess resources, particularly should you wish to
legally protect your hard-earned financial nest egg for your family members and
retain the option to become Medicaid eligible when the time comes. Please contact our office to assist you
further.
[1] Kiley, Kiley & Kiley can gladly provide more information regarding resource and asset protection planning to also allow Medicaid eligibility.
[2] See N.Y. Social Services Law Section 141(6) and General Business Law Sect. 453 for the laws on funeral trusts. See also http://www.health.ny.gov/health_care/medicaid/publications/pub2011adm.htm for 11 OHIP/ADM-04-Treatment of Irrevocable Pre-Need Funeral Agreements (July 11, 2011) available at for the NYS Dept. of Health directive implementing and the NYS DOH Medicaid Reference Guide [MRG] section on funeral agreements and burial funds, available at http://www.health.ny.gov/health_care/medicaid/reference/mrg/index.htm.