Irrevocable Funeral Trusts (IFTs), or differently phrased, Irrevocable Funeral Expense Trusts, allow persons to pay for their funeral and burial costs, also known as final expenses, in advance of their death. They are legal agreements that not only allow peace of mind knowing that funeral funds are available when needed, but they are also an invaluable Medicaid planning tool. Essentially, IFTs provide a way for Medicaid applicants to lower their countable assets and meet Medicaid’s asset limit for qualification purposes.

In order for seniors to be eligible for long-term care Medicaid, there is an asset limit. This is the maximum dollar value of the assets an applicant can have and be eligible. Fortunately, there are ways to “spend down’ assets that do not violate Medicaid’s rules. Purchasing an irrevocable funeral trust is one such way. Funds that go into this type of trust do not count as an asset for Medicaid eligibility purposes.

The Medicaid asset limit in most states, in 2021, is $2,000 for a single applicant. A single Medicaid applicant with $15,000 would not be Medicaid eligible. However, if they pre-paid their funeral expenses by purchasing an irrevocable funeral trust for $13,000, they would have only $2,000 remaining in countable assets and would, therefore, be financially eligible for Medicaid.

Medicaid’s asset limit varies by state and with one’s marital status. While most states have a $2,000 asset limit, some exceptions are Connecticut ($1,600), New York ($15,750), North Dakota ($3,000), and Missouri ($4,000). Married couples with just one spouse applying for long-term care Medicaid (nursing home Medicaid or a HCBS Medicaid waiver) are able to retain a higher amount of assets due to the Community Spouse Resource Allowance. This spousal allowance is intended to prevent spousal impoverishment. As of 2021, many states allow non-applicant spouses, also called community spouses, to retain $125,000 to $130,000 of the couple’s joint assets. To be clear, this spousal allowance is in addition to the “exempt” assets that can be retained by the applicant spouse. Note that several higher valued assets are not counted towards these limits, including home furnishings, wedding and engagement rings, one automobile, and the Medicaid applicant’s home, given specific circumstances are met. The applicant must have “intent” to live in the home if not currently residing there and have an equity interest in the home under a specified value based on the state. The home is also exempt, regardless of the above circumstances, if the applicant is married and his/ her spouse lives in the home.

It is extremely important that persons do not simply give away their belongings and cash thinking they will become Medicaid eligible by reducing their assets in this manner. Medicaid has a rule in place, the look-back period, in order to prevent this from happening. Transferring assets for less than fair market value within 5 years (2.5 years in California) of one’s Medicaid application date can lead to Medicaid ineligibility for a period of time. (New York is in the process of implementing a 2.5 year look back for long-term home and community based services). There are legal opportunities to qualify for Medicaid without a spend down (in many cases) and a qualified Elder Law Attorney can counsel you given your exact situation. At Elder Law Center of WI, we focus on counselling our clients. Given your exact situation, a plan can be developed to achieve your goals (asset protection, tax avoidance, estate planning, etc.).