Irrevocable Funeral Trusts
(Visit Donloperfinancial for more information)
trust (ILIT – Irrevocable Life Insurance Trusts) is an essential tool to pay for
It is essential especially in cases preserving an asset that will pay for the costly funeral and is not counted as an asset
during Medicaid qualification review. The trust ensures that your funeral expenses are paid first and are protected
from any creditors. If you or parents need to qualify for Medicaid assistance, the “irrevocable” trust can ensure that
your final expenses are intact to pay for funeral without the spouse digging for money elsewhere.
You may already have a family member in a nursing home, it
doesn't matter. The moment you establish an
Irrevocable Funeral Trust the funds are removed from the control of the estate without penalty and no longer a
What are the differences between Irrevocable and a Revocable Trust?
once established cannot be dissolved
until the terms of the trust are satisfied. In the case
of an 'Irrevocable Funeral Trust' the person named as the creator [or grantor] of the 'Trust' must pass away
before the terms and the assets of the 'Trust' can be put into motion because the wording in this 'Trust' states
that the assets cannot be paid out UNTIL the creator passes away.
It is very important that you realize that an "Irrevocable
Funeral Trust' cannot be dissolved for any reason
whatsoever. What these means is that NO PERSON or ENTITY, not even the person in whose name
the 'Trust' was created, can gain access to the assets placed into the 'Trust' - EVER. This is the singular
reason why no person or entity can confiscate the assets placed in an 'Irrevocable Funeral Trust'. This is also
the reason why funeral trusts receive special tax treatment.
once established can be 'dissolved' by the person who originally created it.
the assets that were placed into the trust revert back to the ownership status they held before they were
assigned to the trust.
Because a 'Revocable Trust' can be dissolved by its creator, or some other person or entity at any time, it will
not enjoy favorable tax treatment or exemption from confiscation by a nursing homes, Medicaid providers or
even hospitals, doctors and the like.
Without a Funeral Trust for Final Expenses being protected,
families have to pay for their parents funerals
averaging $8,000 to $12,000 out of their own pockets. Nobody wants to pass this "bill" on to their kids or
spouse. Without the asset protection of a funeral trust (state limits below) to protect and preserve these funds
families are left taking loans or going into debt.
What if I already have life insurance?
Depending on your circumstances call the insurance carrier and ask if you can “convert” your whole life
insurance to irrevocable. Whole life insurance is unique in that it can have a cash value built up that the
owner has access to. Converting this to irrevocable puts these funds out of reach of owner, as well as anyone else
and cannot be revoked until the terms of the trust are met. (death of owner)
Term insurance does not have a cash value therefore no funds for owner to access. It would not have to
be cashed in.
“For persons age 65 or over, blind or disabled, count it only when the total face value of all policies
owned by each person exceeds $1,500. In determining the face value, do not include any life insurance
which has no cash value.”
“In calendar year 2000, some VA Term Life Insurance Policies were assigned a cash value.
The Department of Veteran’s Affairs put into effect a regulation to provide paid-up life insurance on
term policies. When the veteran chooses this option to purchase paid-up insurance with their
term insurance, the policy at that point has a cash surrender value .
The cash value amount is a countable asset.”
(Source: http://www.emhandbooks.wisconsin.gov/meh-ebd/meh.htm )
How can I fund an
irrevocable funeral trust?
your US Savings
Most people forget about their savings bonds and don't have an exit strategy once their savings bonds
reach final maturity (when they stop earning interest).
Others believe that their Savings Bonds can be used for their
final expenses. However, before you can
be admitted into an assisted living facility or Nursing home – expecting the state to pick up the costs
you will be asked if you own any US Savings Bonds - since they are considered a 'countable asset'.
You will have to cash-in your savings bonds involve unnecessary
tax implications at a time when you
least need more complications. So, while you are still in full control of your faculties, and before you
become ill or incapacitated, why not convert some (or all) of your savings bonds into
an 'Irrevocable Life Insurance Funeral Trust'.
If you would like to learn the exact value of your US
Visit www.savingsbonds.com/guru and obtain a complimentary Savings Bond Performance
Report© on each bonds value, even with recommendations which ones should be cashed in.
What to do with annuities?
You could do a "partial withdrawal" and transfer funds (IRS 1035 exchange) into a Funeral Trust.
We will discuss other options in another topic area on why annuitize?
Do You have a fully paid-up life insurance policy with cash value?
A fully paid-up policy, with a cash value of more than $1,500.00 is a countable asset. Your existing
insurance policy can be “exchanged” - via a process known as a '1035 Exchange' with no reduction
or loss of any benefits or value already earned into a new “irrevocable” funeral trust policy.
Instead of converting the policy which could already be over the state limits. (chart below)
What about Funeral Home Pre-paid Agreements?
Committing your final expense funds to a specific funeral home may "not" be a wise decision.
Read the following articles of the risks involved.
by Barry Yeoman, Jan & Feb 2008
"A Funeral-Industry Scandal that's FLEECING Thousands of
UPDATE 11/25/2010--- US Attorney's Office Indicts NPS Officials on 50 Counts
“Six officials with NPS - including members of the Cassity
family- have been indicted on charges of fraud that allegedly cost funeral
and funeral homes up to $600 million.” “The indictment states that after taking into account insurance and trust assets expected to be available
to pay for future funeral services, and merchandise under prearranged funeral contracts sold by National Prearranged Services, Inc., (NPS), the
loss to purchasers, funeral homes, and state insurance guarantee associations will range from $450,000,000 to $600,000,000.”
(Source: http://www.funerals.org/newsandblogsmenu/blogdailydirge/727-npsupdate )
$21M Preneed Shortfall Leads to Takeover of Wisconsin Association
“Receiver: More than 10,500 investors are affected; probe will focus on association and fund managers…” Sept 24, 2012
(Source: http://www.fsawisconsin.org/Resources/Documents/Funeral%20Service%20Insider%20-%20Wisconsin%20Funeral%20Trust.pdf )
Most Asked Questions:
Why should anyone obtain an Irrevocable Funeral Trust?
It is one tool used to protect and secure a portion of countable
assets prior to the ravages of medical
expenses consuming ones savings leaving insufficient funds to pay for funeral. We avoid passing this
cost onto our loved ones that will only compound their grieving.
What expenses are paid for by an Irrevocable Funeral Trust?
Basic Services of Funeral Director & Staff Professional Services Embalming
As well as:
Dressing / Cosmetology Casketing
Funeral Home Facilities and/or Staff Services
Outer Burial Container
Transportation Equipment & Driver
Transfer of Deceased
What is the maximum amount a Funeral Trust can be written for?
The maximum policy amount on the high end is $15,000. However, most insurance companies may
impose lesser amounts (to stay in compliance with a States standard Medicaid practice)
Goods & Services - certain states Medicaid require a cost "justification" from a certified funeral
director. (One cannot just shelter $100,000 of cash away for a $3,500 cremation and pocket the balance!)
A funeral director verifies the costs for their services (listed in ILIT document) and typically charges
fee's of $85 to do so. There are "no" fees to establish an Irrevocable Funeral Trust, and the $85 fee
the Funeral Director charges for state compliance is a separate stand alone cost.
STATE LIMIT ($) = Updated 3/8/2013
Alabama (AL) $15,000.00 NEW - Goods & Service
Alaska (AK) $15,000.00 NEW
Arizona (AZ) $8,000 no (GS) $15,000 NEW - Goods & Service
Arkansas (AR) $15,000 NEW - Goods & Service
California (CA) $15,000
Colorado (CO) $15,000
Connecticut (CT) $5,400.00
Delaware (DE) $10,000.00
District of Columbia (DC) $15,000 NEW
Florida (FL) $15,000 NEW - Goods & Service
Georgia (GA) $10,000.00
Hawaii (HI) $15,000 NEW
Idaho (ID) $15,000 NEW
Illinois (IL) $5,703 no (GS) $15,000 NEW - Goods & Service
Indiana (IN) $10,000.00
Iowa (IA) $15,000 NEW
Kansas (KS) $5,000.00 NEW - Goods & Service
Kentucky (KY) $15,000 NEW
Louisiana (LA) $15,000 NEW
Maine (ME) ?
Maryland (MD) $15,000 NEW
Massachusetts (MA)$15,000 NEW
Michigan (MI) ?
Minnesota (MN) $15,000 NEW - Goods & Service
Mississippi (MS) $15,000 NEW
Missouri (MO) $15,000 NEW
Montana (MT) $15,000 NEW
Nebraska (NE) $12,500 NEW
Nevada (NV) $15,000 NEW - Goods & Service
New Hampshire (NH) $15,000 NEW - Goods & Service
New Jersey (NJ) $15,000 NEW
New Mexico (NM) $15,000 NEW
New York (NY) ?
North Carolina (NC) $10,000.00
North Dakota (ND) $6,000 NEW
Ohio (OH) $15,000 NEW
Oklahoma (OK) $10,000 NEW
Oregon (OR) $15,000 NEW
Pennsylvania (PA) $15,000 NEW
Rhode Island (RI) $15,000 NEW
South Carolina (SC) $15,000 NEW
South Dakota (SD) $15,000 NEW
Tennessee (TN) $6,000.00 NEW - Goods & Service
Texas (TX) $15,000 NEW
Utah (UT) $7,000.00
Vermont (VT) $12,500 NEW
Virginia (VA) $15,000 NEW
Washington (WA) $15,000 NEW
West Virginia (WV) $4,000.00 NEW - Goods & Service
Wisconsin (WI) $15,000.00 NEW
Wyoming (WY) $15,000.00 NEW
**A goods &
services list is needed to justify the amount of the trust for Medicaid
What is the lowest amount a policy can be written for?
The minimum policy amount accepted is $1,000 for most states.
In some states the minimum amount is $500.
What is an Irrevocable Funeral Trust (IFT) ?
The IFT is an agreement between the grantor/insured and one or more Trustees named by the
Company, which is established to make funds Available upon the death of the grantor/insured, for
the purpose of paying the final expenses, up to the limits of the amount placed into the IFT as
defined in the IFT Agreement.
What is the definition of an Irrevocable Funeral Trust?
IRREVOCABLE means it is impossible to change or distribute the funds delivered into the IFT by
the grantor/insured until the terms stated in the IFT are met. Thus, none of the terms of the agreement
can be changed, amended or canceled by any person or entity. The trust may not be Terminated or
liquidated except through the distributions permitted by the terms stated in the IFT. i. e. the death
of the grantor/insured.
What is a Trustee?
The Company will designate one or more Trustees to carry out the terms as specified in the IFT.
Upon proper notification that the insured has passed away, the Trustee, appointed by the Company,
will carry out the terms contained in the IFT.
What will the Trustee do with the property [funds] that the grantor/insured
has transferred into the IFT?
Under the terms of the IFT, the Trustee shall have no duty to, and is expressly prohibited from, changing,
liquidating, or diversifying any trust assets contributed by grantor/insured. Thus, the Trustee cannot
surrender a policy to any person or entity for its cash value. The Trustee can only make distributions
according to the trust indenture that states that distributions shall be made FIRST to a service/product
provider(s) in payment for the grantor/insured person' s final expenses. In the event that there are any
remaining [excess] funds, the Trustee is obligated to distribute them to any residual beneficiary so
named, or to the estate of the deceased.
Can the Trustee change the beneficiary of the IFT?
Can the Trustee change the owner or beneficiary of the life insurance policy?
Do these transfers qualify for exclusion, without penalty, regardless of any
look-back period or spend down provisions of Medicaid?
The IRREVOCABLE assignment of assets to an IFT is designed to qualify those assets for exclusion,
without penalty, regardless of any look-back period or spend down provisions of Medicaid. However,
since the rules are somewhat different in each state, check the state of legal residence of the proposed
grantor/insured for the specific rules and regulations currently in effect.
Who can be named as a residual beneficiary?
The servicing funeral home will automatically be paid FIRST according to the terms of the IFT. If
there are any funds remaining [residual funds], the Company recommends that the residual beneficiary
be a family member of the grantor/insured.
Why shouldn't a spouse be named as a residual beneficiary?
The client can name anyone they choose as a residual beneficiary. However, the Company recommends
that the grantor/insured name someone other than their “community” spouse in order to avoid the
funds coming back into the estate and creating problems with potential creditors, and estate taxes.
This is determined if Medicaid planning has occurred.
Can the residual beneficiary be changed at a later date?
No. This is why it would be best to name a much younger family member as the residual beneficiary.
If the residual beneficiary is a family member, is the amount paid to the
residual beneficiary subject to the look-back period or spend down provisions of Medicaid?
The IRREVOCABLE assignment of assets to the IFT has been designed to qualify those assets for
exemption, without penalty, regardless of any look-back period or spend down provisions of Medicaid,
and regardless of whether the residual beneficiary is a family member.
Are you allowed to have more than one policy in the trust?
No. Each policy must have its own IFT.
Can any individual have more than one IFT?
Yes. However, the aggregate amount of all IFTs cannot exceed the total exempted amount based on
Medicaid laws in any given state.
Can the money be taken back once the assignment into the IFT made?
Yes. During the 30 day 'free-look' period the grantor/insured decides not to continue with the IFT,
all assets will be returned to the grantor/insured and the IFT is effectively cancelled. The 30 day
'free-look' period begins the day after the grantor/insured receives the acceptance letter and
Certificate of Coverage from the Company. When the 30 day 'look-back' period expires the funds
will not be returned for any reason whatsoever.
Explain the Part A and Part B in a full trust agreement involving attorney’s.
The Trustee shall divide the Trust Estate into two separate shares; trusts A and B. Trust A shall be
composed of cash in an amount equal to the lesser of (1) the maximum amount that may be set aside
in the state of the grantor/insured's residence for funeral expenses and qualify as Exempt Assets for
purposes of Medicaid qualification, less the aggregate amount of assets designated for such purposes
not owned by this Trust or (2) the grantor/insured's funeral expenses paid or payable by the Trustee
in accordance with and as specifically authorized by grantor/insured's expense directive attached
to the Trust as Exhibit "A".
Trust "B" shall be the balance of the Trust Estate after the assets have been allocated to Trust "A".
This provision in the trust allows the grantor/insured to take the maximum amount for funeral
expenses and qualify as Exempt assets for purposes of Medicaid qualification as determined in
the grantor / insured's state of residence.
Is a specific funeral home named anywhere in the application documents?
No. This is one of the main attractions of an IFT. A person may pass away and have a funeral and
subsequent burial in any state. Those persons responsible to handle a deceased grantor/insured
burial arrangements will carry them out. The Trustee of the IFT will distribute the funds in accordance
with paying the servicing funeral home that provides the products and services FIRST.
Can these funds be attached by Medicaid, nursing homes, doctors, hospitals or other creditors?
No. The IFT is designed to qualify these assets for exemption, without penalty, regardless of any
look-back period or spend down provisions of Medicaid. As such, assets exempt from Medicaid
would not be attachable by any other person or entity.
Can the client cash in the policy/trust at a later date?
No. The grantor/insured can only cancel this policy during the 30 day 'free look' period and have
their fund returned. Once the client has assigned all rights of the policy to the IFT, these assets
are no longer under their control. They cannot cash it in, borrow
against the cash value, or implement
any other similar type of options that might be considered as an attachment or an attempt at
'breaking the trust'. This is the IRREVOCABLE portion of the title an Irrevocable Funeral Trust.
If the trust is not IRREVOCABLE, it would be subject to attachment by any and all types of
'creditors', including nursing homes and other entities. The grantor/insured's signature on the IFT
document is an assignment and a complete severance of their control, or any other person or
entity's ability to get access to these funds.
How long does it take to get the funds distributed at the time of death?
The funeral home providing the services will fax or mail a copy of the itemized bill, signed by a
family member, or an authorized representative of the family, along with a copy of a certified
death certificate to the Company. Within 1-2 day(s), the funds of the IFT are distributed
[paid out] to the servicing funeral home FIRST. Any residual
funds will be distributed to the
Residual Beneficiary [Beneficiaries] the following business day.
Who is officially named as the owner and primary beneficiary of the policy?
The owner and primary beneficiary will be the Trustee designated by the Company. The
purpose of this is to keep the funds in the IFT apart from the estate or spouse of the deceased.
Why does the grantor/insured assign their policy ownership rights to the IFT?
The grantor/insured's assigns their rights to ownership of the policy to the IFT to remove the
funds from their control and permanently remove them from their estate. This further prevents
these funds from being pursued by any and all creditors.
Any further questions don’t hesitate to call me toll free 866-636-7614.
“The best Investment, is a Great Agent”