By Steven Buttice, Founder and President, Living By Your Design, Inc.
Funeral trusts (also known as pre-paid funerals) have been a hot topic in the marketplace — why? Life has its twists and turns. Sometimes, it becomes necessary for a person to go onto Medicaid if they need help to pay for Supportive Living or nursing home expenses. For most cases in Illinois, a single person can keep up to $2,000 in assets and, in some cases, lose the life insurance policies they took out years ago.
Prepaying a funeral can be an easy way to protect your assets from Medicaid. This can be accomplished by purchasing a last expense life insurance policy and irrevocably assigning the policy to a funeral trust. A funeral trust is generally considered an exempt asset for Medicaid planning and is not subject to the five-year look-back rule.
Each state is different, but in general, one is allowed a certain amount of assets. Any amount that is greater than what the states allow must be liquidated to pay for care before one can become eligible to receive Medicaid benefits. These assets may include bank instruments and other investment vehicles, retirement accounts, cash value of most life insurance policies, revocable living trusts, and burial trusts, if they exceed an allowable amount.
Transfers of assets within 60 months from the date applying for Medicaid will be brought back into one’s asset base for the calculations. Please note asset transfers can have a huge impact on the benefits received from Medicaid and one should contact an elder law attorney for issues relating to this area of planning.
Some of the benefits of a funeral trust are:
- Policy benefits are free from income tax
- The trust is portable and can be used in all 50 states
- The trust is already established so no attorney fees are associated with establishing the trust
- Money can be set aside permanently for funeral expenses
- Benefits are paid directly to the funeral home or cemetery, any excess benefits are paid to the estate of the insured
- These funds cannot be attached by creditors
As with any investment, it is important to weigh the cost. The biggest cost is the loss of insurance death benefit if you transfer an existing policy into a new policy held in the funeral trust. The cash value, not the death benefit, would transfer from the old plan. If the insured dies before applying for Medicaid, this could become very costly. If the insured retains the old plan and applies for Medicaid, they could be forced to surrender it.
Each case must be looked at independently. The pros and cons must be thoroughly examined. It is imperative one seeks counsel from an attorney, accountant, and trusted financial and/or insurance adviser before making any decisions.
If you would like complimentary educational material on a funeral trust, please call or email us at 309-285-8088 or Steven@LivingByYourDesignInc.com.
For more information, contact Living By Your Design, Inc. at 309-285-8088 or online at www.LivingByYourDesignInc.com. Living By Your Design, Inc. focuses on the issues of older Americans: legal, financial, free guidance for residential placement, and health care issues. We are located at 809 W. Detweiller Dr., Peoria, IL 61615.
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