Irrevocable Funeral Trusts and Medicaid: How They Work
If you or someone you love may need Medicaid to cover long-term care, it is natural to wonder what happens to the money set aside for a funeral. An irrevocable funeral trust is a prepaid funeral arrangement that, in many states, is not counted against the asset limit for Medicaid. The details change from state to state, and the trust has to be set up correctly. We are here whenever you are ready to talk it through.
Table of Contents
- Quick Answer
- TL;DR
- What an irrevocable funeral trust is
- Why Medicaid cares about it
- How the rules differ by state
- What California requires
- What an irrevocable funeral trust can pay for
- What this can look like at Bravo
- Benefits of an irrevocable funeral trust
- When an irrevocable funeral trust may not fit
- How to set one up, step by step
- Our perspective
- Planning ahead with Bravo
- FAQ
- Sources
Quick Answer
An irrevocable funeral trust holds money you have paid a funeral home for future services, and you cannot take it back. Because you no longer have access to it, many state Medicaid programs do not count it as a resource. Rules differ by state, some cap the amount, and a poorly written trust can still cause a penalty. Confirm the details with your state Medicaid agency or an elder law attorney before you fund anything.
TL;DR
- Irrevocable means the money can only be used for funeral and burial costs. That restriction is what lets many states exclude it from Medicaid’s asset count.
- State rules vary widely. Wisconsin, for example, limits the irrevocable portion to the first $4,500, while Utah excludes an irrevocable burial trust from the resource count.
- Funds that remain after the funeral may be subject to Medicaid estate recovery, so a trust should be sized to real costs.
- A trust that can pass money to your children, or that names no specific services, can lead to a penalty.
- In California, preneed payments must be held in trust by the funeral establishment until the contract is fulfilled.
What an irrevocable funeral trust is
A funeral trust is a way to pay in advance for your own funeral or a loved one’s. You sign a contract with a funeral home that lists the services and merchandise you want, and the money goes into a trust or similar protected account. Federal banking guidance describes the usual setup: a contract between the consumer and the funeral home, plus a trust agreement that controls when funds are released. Money goes to the provider after services are delivered, back to the consumer if the contract is cancelled, or to the estate if something is left over (OCC trust handbook on pre-need funeral arrangements). Whether the trust can be irrevocable or revocable depends on state law and the contract.
The word irrevocable is the important part. Once you fund it, you cannot cancel and take the money back for other uses. It is set aside for one purpose.
Why Medicaid cares about it
Medicaid long-term care, such as nursing home coverage, is means-tested. You can only qualify if your countable assets are under your state’s limit. Money in a savings account counts. Money you can reach at any time counts. Federal guidance says that any part of an irrevocable trust principal that could be paid to you or for your benefit is treated as a resource (SSA POMS on Medicaid trusts).
A properly written irrevocable funeral trust works differently, because the money can only go to a funeral provider for your services. Many states therefore exclude it, either up to a cap or in full. That is the reason you see this topic tied to Medicaid planning so often.
It is not automatic, though. Federal rules under section 1917(d) of the Social Security Act treat an irrevocable trust funded with an applicant’s assets as a possible asset transfer. States must decide whether fair market value was received in exchange (CMS guidance, 2014). A trust that buys real funeral goods and services at fair prices is generally easier to defend than a vague account that merely carries the word funeral.
If you are also sorting out how Medicare and Medicaid fit together for yourself or a parent, this plain-language guide to Medicare and Medicaid differences explains who qualifies for which program and whether you can hold both.
How the rules differ by state
There is no single national answer. Here are three examples from official state sources that show the range:
| State | What the rule says |
|---|---|
| Wisconsin | Only the first $4,500 paid under a qualifying pre-need agreement may be irrevocable and exempt. Amounts above that are revocable and countable (Wisconsin Medicaid handbook). |
| Utah | An irrevocable burial trust is excluded from the resource count if it is restricted to a specific funeral provider or to burial and funeral expenses. Transfer rules apply to value above $7,000 (Utah eligibility manual). |
| Indiana | One irrevocable burial trust or prepaid funeral agreement may be excluded up to $10,000, exclusive of interest, if remaining amounts are designated for Medicaid reimbursement (405 IAC 2-4-3). |
New York took another route. For Medicaid applicants and recipients, it required pre-need funeral agreement funds paid on or after January 1, 1997, to be placed in an irrevocable trust (New York State Department of Health).
The lesson: the same trust can be fully protected in one state and only partly protected in another. If you are moving, or a parent lives in a different state than you do, check the rules where the Medicaid application will be filed.
What California requires
We serve families across San Diego County, so California is our reference point. Medicaid in California is called Medi-Cal, and it has its own eligibility rules, which we cannot summarize for your situation. What we can point to is state law on how a funeral home must handle prepayment.
California Business and Professions Code section 7735 requires a funeral establishment that receives payment for future funeral services or merchandise to hold the money or securities in trust until the preneed contract is fulfilled. Trust income may cover permitted administration fees and reserves, but the principal cannot be used for commissions or other trust-administration expenses (California BPC 7735). In plain terms, the money you prepay is meant to stay protected for your funeral, not become the funeral home’s operating cash.
For how Medi-Cal treats the trust itself, including any dollar limits, please ask your county eligibility worker, the Medi-Cal office, or an elder law attorney in San Diego. Rules and thresholds can change, and they should confirm the current ones in writing.
What an irrevocable funeral trust can pay for
A good contract names specific goods and services. The Social Security Administration’s current guidance describes burial-related expenses as generally including preparing the body and services before burial, such as transportation of the body, embalming, cremation, flowers, clothing, and funeral director and staff services (SSA POMS, burial funds exclusion).
New Jersey gives a more detailed list that is useful as a model. It counts facilities and professional services, transportation of remains, caskets, vaults, urns, grave opening and closing, cremation or body preparation, cemetery fees, and markers. It also says a preneed arrangement should not include goods or services for the living, such as travel for family members, food, gratuities, or clothing (New Jersey Medicaid communication, 2018). Not every state draws the line in the same place, but the logic holds: Medicaid is comfortable with goods and services for the person who died, and wary of anything that benefits the family.
What that means for planning:
- Choose the type of service first: burial, cremation, aquamation, or a memorial.
- List the merchandise: casket, urn, container, or none.
- Include the cemetery or cremation costs and the professional services fee.
- Leave out reception food, travel, and gifts for relatives.
What this can look like at Bravo
Funeral prices change over time, so one reason families prepay is to lock in today’s costs. These are the published prices on our pricing page:
| Service | Price |
|---|---|
| Memorial Ceremony + Cremation | $5,495 |
| Traditional Cremation & Ceremony | $6,995 |
| Immediate Burial | $2,995 |
| Natural Burial | $3,995 |
| Traditional Burial | $6,499 |
| Direct Water Cremation (Alkaline Hydrolysis) | $4,200 |
| Natural Organic Reduction | $10,995 |
Simple Cremation does not have a published price on that page, so please ask us for the current figure. Our general price list is also available as a PDF. Some extras apply in specific cases: a $695 weekend and holiday surcharge, $5 per mile beyond 30 miles, and a 4% administrative fee on assignable insurance policies. We show these so nothing surprises you later.
If Medicaid is part of your planning, a precise line-item contract matters. Prices like these show how much a plan should cost, so you do not overfund a trust. For help with the paperwork, see what a funeral pre-arrangement document includes and what a funeral home contract should include.
Benefits of an irrevocable funeral trust
- It may protect Medicaid eligibility. In states that exclude it, the money does not count toward the asset limit.
- It sets aside money for its purpose. The funds cannot be spent on other things, by you or anyone else.
- It spares your family. They do not have to guess your wishes or find the money in a hard week.
- It can lock in today’s prices. Depending on the contract, the plan may cover the services you choose even if prices rise later. Ask exactly what is guaranteed.
When an irrevocable funeral trust may not fit
You may need the money for care
Because the trust is irrevocable, you cannot take the money back if your needs change. If you are paying for care out of pocket, think carefully about how much you can afford to lock away.
Transfers can trigger a penalty
Under rules from the Deficit Reduction Act of 2005, giving away assets for less than fair market value can create a penalty period that delays Medicaid long-term care coverage (CMS transfer of assets background). For transfers on or after February 8, 2006, the penalty starts on the later of the transfer date or the date the person is in a nursing home and otherwise eligible. States also look back at trusts created from an individual’s assets during the look-back period (CMS, 2014).
A real example shows how this plays out. An Illinois appellate court upheld a penalty where funds assigned to an irrevocable trust could pass to the applicant’s children and there was no contract for specific funeral services (Evans v. State of Illinois). The trust looked like funeral planning, but it did not act like it.
Overfunding can backfire
If you put in more than the funeral will cost, the leftover may not come back to your family cleanly. States must recover certain Medicaid benefits from the estates of enrollees aged 55 or older, and money remaining in a trust after death may be used to reimburse Medicaid (CMS estate recovery). Size the plan to the actual services.
Hardship can be an exception
States must waive the trust rules when applying them would cause undue hardship (CMS, 2014). If your situation is unusual, an attorney can tell you whether that applies.
How to set one up, step by step
- Talk with your Medicaid caseworker or an elder law attorney first. Ask how your state treats funeral trusts, whether there is a cap, and how the application will be reviewed.
- Decide on the services. Write down what you want and who should be involved.
- Get an itemized contract. It should name specific goods and services, not a vague lump sum. Compare it with the funeral home’s general price list.
- Confirm how the money is held. Ask who the trustee is, where the funds go, and what happens if you move or change your mind where the law allows it.
- Keep the paperwork in several places. Give copies to your family, your attorney, and your agent. Our guide on paying for funerals online explains how a secure online process can work.
- Report it as required. Your caseworker will want to see the contract and trust documents.
Our perspective
We talk with families every week who are caught between caring for someone and worrying about what a funeral will cost. Our view is simple. A prepaid plan only helps if the family can read it and understand it. That is why we publish our prices, put everything in writing, and let families complete arrangements online through our secure PartingPros portal at any hour, with no sales pressure. We are independent and family-owned, and we serve English- and Spanish-speaking families across San Diego County.
We are not attorneys, and we do not decide Medi-Cal eligibility. What we can do is give you an itemized plan with real prices, so your attorney or caseworker has clear numbers to work from. If a veteran in your family is involved, we also help coordinate VA burial benefits paperwork at no extra charge, which can change what you need to prepay.
— Steve Olsher
Planning ahead with Bravo
Our pre-planning service lets you record your wishes, see the price of each choice, and share the plan with your family. You can start at your own pace, online or by phone, and there is no obligation. We are here whenever you are ready.
If you are also trying to understand what happens after a death, our guide to recovering funeral costs from an estate may help. For a parent receiving hospice care, see our explanation of hospice and palliative care.
FAQ
Can Medicaid take funds from an irrevocable trust?
If any part of the trust principal could be paid to you or for your benefit, it is treated as a resource. A funeral trust that can only pay a funeral provider for your services is treated differently in many states. Money left after the funeral may still be subject to estate recovery.
Can Medicaid take your prepaid funeral expenses?
In states that exclude irrevocable funeral trusts, Medicaid does not count the money while you are alive. After death, states must seek recovery of certain benefits from enrollees aged 55 or older. Leftover funds may be part of that. Spending the trust on the services you contracted for is how the money is meant to be used.
How does an irrevocable burial trust work?
You sign a contract with a funeral home that lists your services and pay into a trust. The trust releases money to the funeral home when services are provided. Because you cannot withdraw it, many states do not count it as an asset.
Is an irrevocable funeral trust right for everyone on Medicaid?
No. It suits people who know what they want and can afford to set the money aside. It is a poorer fit if you might need the funds for care, or if your state caps the excluded amount below the cost of your plan. An elder law attorney can review your numbers.
Sources
- OCC trust handbook on pre-need funeral arrangements
- SSA POMS on Medicaid trusts
- CMS guidance on Medicaid trusts, 2014
- Wisconsin Medicaid handbook, burial assets
- Utah irrevocable burial trust manual
- Indiana 405 IAC 2-4-3
- New York State Department of Health directive
- California Business and Professions Code 7735
- SSA POMS, burial funds exclusion
- New Jersey Medicaid communication, 2018
- CMS transfer of assets background
- Evans v. State of Illinois
- CMS estate recovery