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Do You Need an Irrevocable Funeral Trust?

Do You Need an Irrevocable Funeral Trust? By Dave Nesbit

An Irrevocable Funeral Trust (IFT) is a useful tool for people who are facing the high cost of skilled nursing care. The IFT is an eligible expense during the Medicaid spend-down process. It sets aside sufficient assets so that a surviving family member does not get stuck paying for the cost of burial or funeral expenses after all of the deceased’s assets have been exhausted from the expense of long term care.

An IFT is not necessary for everyone. Persons of higher net worth, who will never need Medical Assistance from DPW to pay for care in a skilled nursing home, probably have other life insurance or sufficient capital resources in reserve to pay for their funeral expenses. However, residents of a Continuing Care Retirement Community (CCRC), who have been guaranteed that the costs of their care will be paid by the CCRC even after their assets have been exhausted, should consider an IFT if their assets are nearing the point of depletion.

The entire cost of the IFT is paid in advance. The Department of Public Welfare (DPW) will allow an IFT to be created for an amount not to exceed 125% of the average cost of a funeral, as determined on a county-by-county basis. As a practical matter, cremation expenses could be half of the cost of an embalming and burial.

There is no medical underwriting. The legal expense to create the IFT is paid by the insurance company, who acts as the Trustee of the IFT. There is no expense to the insured party to create the IFT other than the one-time cost of the insurance, which is the face value of policy, which usually grows at the annual rate of approximately one percent (1%).

There is no need to have a specific advance quote from a funeral home before creating an IFT. The IFT therefore allows those who are overwhelmed by the day-to-day details that come with being a supportive caregiver of a loved one who is receiving skilled nursing care, to complete the Medicaid spend-down quickly, without focusing on the specifics of death and what needs to happen afterwards. We have found that providing this service as a part of our comprehensive asset protection planning for those facing a nursing home crisis is a simple process, and a relief from the need to add an extra chore to a caregiver’s task list during the “spend-down process” to qualify for Medical Assistance in a skilled nursing home.

The IFT is portable and can be used to reimburse services provided by nearly every funeral home. After the Medicaid spend-down process has been completed, we strongly encourage the family of the insured to work with their choice of a trusted funeral director in advance of the insured’s death. By working with an experienced funeral director to complete the detailed planning of the final arrangements in advance of the insured’s death, the wishes of the both the insured and the survivors can be accommodated. Advance planning with a funeral director can eliminate unnecessarily stressful complications immediately following the death of the insured.

Upon the insured’s passing and the Trustee’s receipt of legal proof of the death, as well as an invoice for the expenses associated with the proper disposition of the deceased by a funeral home or other authorized agency, the Trustee will issue a check in a timely fashion. If there are any remaining funds in the IFT after all the final expenses have been paid, those funds will be paid to the estate of the deceased.

The IFT cannot be accessed by anyone until the death of the insured party. The family may not borrow from the cash value. The nursing home may not expect that the value be used for the cost of care. After death, the estate recovery process of the DPW may not make a claim against the IFT to reimburse Medical Assistance expenses of the deceased, until all funeral related expenses have been paid.

Eligible IFT expenses include the following:
• Basic services of a funeral director and staff including cremation or embalming and other care of the deceased
• Funeral home facilities and/or staff services including management of a viewing, visitation and a funeral or memorial service
• Cemetery expenses including a grave side service, burial plot, vault or crypt, marker, and grave opening and closing
• Miscellaneous funeral expenses including: a casket or urn; transportation to transfer the deceased; honorariums for clergy and musicians; stationery; flowers; reception refreshments; obituary; clothing the deceased; death certificates; and related and customary expenses

Our office is willing to answer basic questions about IFTs as part of a free telephone consultation.