Funeral trust
Money set aside to pay for a funeral, held so it cannot be spent and often so it does not count for Medicaid.
What it means
Paying for a funeral in advance can be done two ways and they behave differently. A preneed contract with a particular funeral home buys named goods and services from that home. A funeral trust holds money for funeral expenses without necessarily tying it to a provider.
The distinction that matters is revocable or irrevocable. A revocable arrangement can be canceled and the money taken back, which also means it still counts as the person's own asset. An irrevocable one cannot, which is what allows it to be excluded from the assets counted for Medicaid — and is why an irrevocable trust is often set up at the point somebody is applying for long-term care.
Portability is the practical question. Money tied to one funeral home is worth much less if the person moves state, or if that home closes or is bought. A trust that is not tied to a provider, or a contract that says in terms that it can be transferred, avoids that.
Life insurance assigned to a funeral home is a third arrangement that looks like the other two and is not: the policy pays the home directly, and what happens to any excess depends on the assignment.
Why it matters
It is the arrangement most often made under pressure, days before a Medicaid application, and the terms are hard to change afterwards.
Families frequently discover a prepaid funeral only after arranging and paying for another one.
When you are likely to meet it
- When a parent's assets are being reduced ahead of a Medicaid application.
- When a funeral home offers a prepayment plan.
- When somebody dies and the family finds paperwork suggesting it was already paid for.
How this varies by state
What may be set aside, whether it must be irrevocable to be excluded, and how much is allowed are set by each state's Medicaid rules and its preneed statute.