How Irrevocable Funeral Trusts Preserve Assets and Help Persons Qualify for Medicaid Long Term Care

Summary
An Irrevocable Funeral Trust can help you qualify for Medicaid by lowering your countable assets, and it can give you comfort knowing your burial and funeral expenses are paid for and won’t be a burden to your family. These trusts must follow certain rules, and this article will cover those rules, the benefits of an Irrevocable Funeral Trust, and how you can create one and use it to your advantage.

What is an Irrevocable Funeral Trust?

An Irrevocable Funeral Trust (IFT) is a way for you or your loved one to set aside money that will be used for your funeral and burial expenses after your death. This will help ease the financial burden on your family since the average funeral can cost anywhere from $7,000 to $12,000. They are becoming so expensive that a recent trend has seen families turn to crowd funding to help cover funeral and burial expenses.

An IFT can also be a useful planning tool that will help you qualify for Medicaid, which will be the focus of this article. IFTs can also be referred to as Irrevocable Funeral Expense Trusts.

Asset Limits, the Look-Back Period & How They Impact IFTs

To understand how an Irrevocable Funeral Trust can help you or your loved on qualify for Medicaid, you first need to understand Medicaid’s asset limit.

For you or your loved one to be eligible for Medicaid Long Term Care, you must meet an asset limit. In most states in 2025, the asset limit for an individual is $2,000. This means the value of all your countable assets must be $2,000 or less. Most assets are counted – savings accounts, checking accounts, stocks, bonds, certificates of deposit, cash or anything that can be easily converted to cash. However, some assets are not counted or “exempt.” These can include your primary home (in most circumstances), appliances, furniture, primary vehicle and personal belongings like clothes and wedding rings. To learn more about how Medicaid treats the home, click here.

Medicaid considers all assets of a married couple to be jointly owned, which means they will all count toward the asset limit for both spouses. For married couples with both spouses applying, the 2025 asset limit in most states is a combined $3,000 or $4,000. But things get a little more complicated when just one spouse is applying for Medicaid Long Term Care.

For married couples with just one spouse applying for Nursing Home Medicaid or Home and Community Based Services (HCBS) Waivers, the asset limit for the applicant spouse is $2,000 in most states in 2025, but the asset limit for the non-applicant spouse can be as much as $157,920 in the right circumstances due to the Community Spouse Resource Allowance (CSRA). To learn more about CSRAs, click here.

It’s important to know that all these asset limits can vary by state. In Illinois, for example, the asset limit for all three Medicaid Long Term Care programs is $17,500 for both individuals and couples with both spouses applying. In California, there is no asset limit. The Community Spouse Resource Allowance can also vary widely by state and by the couple’s overall financial situation.

Medicaid Long Term Care applicants must also meet an income limit to qualify, but that limit can not be impacted by an Irrevocable Funeral Trust, so we will not cover it in this article. But if you want to learn more about Medicaid income limits, click here.

To make sure applicants don’t just give away their assets to meet the asset limit in their state, Medicaid uses the Look-Back Period. In most states, the Look-Back Period is five years. This means that the state Medicaid office assessing your application will look back into five years of your financial records (which you must provide with your application) to make sure you haven’t given away any of your assets, or sold them at less than fair market value. The only exceptions are in California and New York.

If you do violate the Look-Back Period, your application will be denied and you will likely be penalized with a period of ineligibility that could last months or years. To learn more about the Look-Back Period, including the exact exceptions in California and New York, click here.

How Irrevocable Funeral Trusts Help You Qualify for Medicaid Long Term Care

Now that you know about the asset limit and the Look-Back Period, you’ll be able to understand how an Irrevocable Funeral Trust can help you qualify for Medicaid.

Irrevocable Funeral Trusts do not count against the asset limit. So, if you have $12,000 in assets, you can put $10,000 into an Irrevocable Funeral Trust to reduce your countable assets to $2,000 and qualify for Medicaid. Spending excess assets to meet Medicaid’s asset limit is called “spend down,” and it is a common planning strategy. To learn more about Medicaid spend down, click here.

Purchasing an Irrevocable Funeral Trust (IFT) does not violate the Look-Back Period. This means you don’t have to plan in advance to buy one. You can purchase an IFT any time before you apply for Medicaid and the money you use will not be counted toward the asset limit.

Two states do not allow IFTs to be used for Medicaid planning purposes – New York and Michigan. But there is an alternative to IFTs available in these two states that we will discuss later in this article.

It’s also important to note that some states set a limit on the amount of money you are allowed to spend on an IFT and make exempt from the asset limit. The limit in most states is $15,000, but that can vary – it’s $10,000 in Georgia, for example, and in Pennsylvania it’s the average cost of a funeral in your area plus 25%, meaning the total can range anywhere from $12,000 to $34,000. To find the limit in your state, check our 50 State Table below.

The company you buy the Irrevocable Funeral Trust from may also set a limit on the dollar value of the trust.

About half of all states no longer have a limit on the IFT dollar value. However, all money in an IFT that is not used for funeral and burial expenses must be given to the state to help cover the cost of Medicaid Long Term Care. This is also true in states that have a limit on the value of IFTs. So, no matter if your state sets a limit on IFTs or not, you probably don’t want to put more money than is needed for funeral expenses into the IFT because it will just go to the state in the end.

Since there are many rules surrounding IFTs that can vary by state, and with all the rules and restrictions around assets limits and the Look-Back Period, we recommend consulting with a Certified Medicaid Planner or Elder Law Attorney before trying to create or use an IFT on your own. If you don’t follow all the rules, your Medicaid Long Term Care application will be denied and you will likely be penalized with a period of Medicaid ineligibility that could last months or even years.

Additional Benefits of an Irrevocable Funeral Trust

Irrevocable Funeral Trusts (IFTs) have other benefits in addition to helping you qualify for Medicaid and providing you with the comfort of knowing your burial expenses are all paid for and won’t be a burden on your family.

• IFTs can be used at any funeral home in the United States.
• As long as they are only used for funeral expenses, the funds in IFTs can be allocated in any manner for the arrangements. So, if burial plots happen to be expensive in your area, your relatives can spend more on that and save on other areas of the funeral.
• IFTs can cover all expenses associated with funerals and burials.

If you have specific arrangements you’d like for your funeral, of course you can let your family know that and they can then use your IFT to make those arrangements. But if something unexpected comes up (your choice of funeral home closes, for example), your relatives will have the flexibility to alter the plan as necessary.

The final expenses that Irrevocable Funeral Trusts can cover include:

• Burial plot
• Casket / Burial vault
• Cemetery fees
• Clergy fee
• Clothing
• Cremation
• Death certificate
• Dressing and casketing
• Embalming
• Funeral home usage
• Headstones / Monuments
• Hearse / Limousines
• Makeup and hairstyling
• Musicians for service
• Printed Death Notices
• Service charge of funeral director and staff
• Urn

Some states will also allow your family to pay for flowers and travel expenses for relatives to attend the funeral with the funds in your Irrevocable Funeral Trust. To find out if that’s the case in your state, we recommend consulting with a professional like a Certified Medicaid Planner.

How to Create an Irrevocable Funeral Trust

In order for this kind of trust to be used as a Medicaid planning tool and make some of your assets exempt, it must be irrevocable, as the name implies. This means it can not be changed or altered in any way after it is created. There are Revocable Funeral Trusts, but they do not comply with Medicaid rules in most states.

In most states, an Irrevocable Funeral Trust (IFT) used for Medicaid planning purposes must name the state as beneficiary. This means that any money left in the trust after all of the funeral expenses are paid for goes to the state.

In 25 states, IFTs are required to have a Goods & Services Agreement in order to be considered Medicaid-compliant. A Goods & Services Agreement is simply an itemized list of all the goods and services you want to be purchased with the funds in the Irrevocable Funeral Trust. The total dollar amount of those goods and services must equal the total dollar amount of the IFT. Failure to include a Goods & Services Agreement with your Irrevocable Funeral Trust in states that require it will be a violation of Look-Back Period rules and will result in your Medicaid Long Term Care application being denied and a period of Medicaid ineligibility.

While some funeral homes and insurance companies will offer to set up an Irrevocable Funeral Trust, we don’t recommend taking that route. Most funeral homes require that they be named the beneficiary of the trust, which is not Medicaid compliant in most states. And the top priority of insurance salesmen will be to sell you a trust, regardless of its impact on your Medicaid eligibility. We recommend using an Elder Law Attorney or a Certified Medicaid Planner to set up your IFT. Most Certified Medicaid Planners partner with lawyers in order to set up these kind of legal arrangements. Plus, many Certified Medicaid Planners will include the creation of an IFT in their fee.

Alternatives to Irrevocable Funeral Trusts

If you don’t want to create an Irrevocable Funeral Trust, or you live in one of the two states that don’t allow them to be used for Medicaid planning purposes (New York and Michigan), there is another option: Pre-Need Funeral Contracts.

As long as a Pre-Need Funeral Contract is irrevocable, meaning it can’t be changed or canceled after it is created, it will be Medicaid-compliant.

Pre-Need Funeral Contracts are set up directly with funerals homes, which is different than an Irrevocable Funeral Trust, which can be created by a Certified Medicaid Planning team or an Elder Law Attorney. Pre-Need Funeral Contracts specify exactly what goods and services are being paid for, and they specify that the funeral home setting up the contract will deliver those goods and services at the price specified on the contract. In this way, Pre-Need Funeral Contracts are much more rigid than Irrevocable Funeral Trusts, which can be used at any funeral home in the country and can provide your family with the flexibility to make arrangements as they see fit at the time. On the other hand, Pre-Need Funeral Contracts establish a guaranteed price for funeral goods and services, while Irrevocable Funeral Trusts offer no such guarantee.

50-State Table: Irrevocable Funeral Trusts