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Funeral trusts coming under fire with Medicaid officials

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A Medicaid Planning strategy aimed at helping individuals plan their funerals could be coming under more scrutiny.  In a recent conference attended by Grunden Law Office team members, industry leaders pointed to a growing popularity where funeral trusts, when used to spend-down assets as part of becoming Medicaid eligible, are coming under fire, mainly the nuances within the trust.

Currently, under Medicaid guidelines, families can place funds into an Irrevocable Trust earmarked for funeral expenses, which then takes that amount of money out of the Medicaid eligibility calculation. Funds in an irrevocable trust do not count as an asset for the purposes of Medicaid eligibility and the creation of this type of trust does not violate the 60-month past asset transfer rule. In the simplest terms, Irrevocable Funeral Trusts (I.F. Trusts) or Irrevocable Funeral Expense Trusts (IFET), can actually be used to help in the Medicaid qualification process.

What is an Irrevocable Funeral Trust?

The Irrevocable Funeral Trust is a legal agreement in which the Trustmaker sets a certain amount of money aside for the purpose of providing for funeral costs. The money set aside in the trust is no longer considered as an asset of the Trustmaker (as long as the trust is irrevocable, which means that the trust cannot be changed, dissolved, or reversed).

Specific clauses need to be included in the agreement provided by the Funeral Home that indicates the trust is in fact Irrevocable. The creation of an Irrevocable Funeral Trust allows an individual to pay for funeral expenses in advance. Because it is a trust and irrevocable, the funds contained in the trust are not counted as an asset by Medicaid, so it effectively decreases the countable assets. In many cases, this can be the difference in whether or not an individual qualifies for Medicaid coverage.

What is the concern over these trusts?

Indiana's Medicaid policies state that they must determine an Indiana funeral trust is valid and irrevocable in accordance with the criteria specified in the applicable state statute. The value of the trust must also be verified. Interest earned on an irrevocable trust is also exempt if the interest accrues to the principal of the trust. Even after approval of Medicaid benefits, caseworkers and program officials have been known to look back at these trusts to ensure the irrevocable portion still stands and also where any excess funds from the trust might go in the end. 

The funeral trust option remains as a viable planning strategy. However, it is important to understand all the variables that make the trust stand the test of time and the scrutiny of Medicaid policy. Before acquiring such a trust, be sure to consult with a Medicaid or Elder Law attorney. Remember, when considering Medicaid for long-term care coverage, there is hardly just one planning option. Know and understand the benefits of each strategy and planning step. Avoid eligibility concerns and hiccups by letting a qualified, experienced Medicaid attorney serve as a guide through the approval process.


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April Grunden