Qualifying for Medicaid is often the only way most individuals can afford long term nursing care, whether that care is received in a long term care facility such as a nursing home or at home. In New Jersey, a long term Medicaid applicant is only permitted to have $2,000.00 in available assets in order to qualify. Many individuals are required to “spend down” their assets to meet the $2,000.00 limit. One tool that can help individuals qualify for Medicaid, while also saving for inevitable funeral expenses is to establish an Irrevocable Funeral Trust. In this post, we’ll explore what an irrevocable funeral trust is, how it works, and how it can assist with Medicaid planning in New Jersey.
What Is an Irrevocable Funeral Trust?
An Irrevocable Funeral Trust is a legal arrangement that allows individuals to set aside funds to cover funeral and burial expenses. Once funds are placed in the trust, they are managed by a trustee and cannot be withdrawn, altered, or revoked by the individual who established the trust. This ensures the money is exclusively used for pre-arranged funeral costs. While the funds are irrevocable, it is often easy to reassign the funds to a different funeral service provider.
Unlike a revocable trust, which can be changed or terminated, an Irrevocable Funeral Trust offers specific benefits, particularly in the context of Medicaid planning. The funds in an Irrevocable Funeral Trust are generally exempt from being counted as an asset when determining Medicaid eligibility. With the average New Jersey funeral costing in the $10,000.00 to $15,000.00 an Irrevocable Funeral Trust can be a powerful planning tool.
How Does an Irrevocable Funeral Trust Work?
- Establishing the Trust:
- The individual works with a funeral provider or financial institution to set up the trust. They specify the funeral and burial arrangements they want, including items such as a casket, service, and burial plot.
- Funding the Trust:
- The individual transfers a sum of money into the trust, typically based on the anticipated costs of the funeral and burial arrangements.
- Management of Funds:
- The funds are managed by the trustee and used exclusively for the purposes outlined in the trust. Any remaining funds after the funeral services will revert to the State of New Jersey if you are a Medicaid recipient or in other cases to your estate.
Benefits of an Irrevocable Funeral Trust for Medicaid Eligibility
Medicaid is a need-based program, meaning applicants must meet strict income and asset limits to qualify. In New Jersey, individuals often find it challenging to meet these requirements while also setting aside money for necessary future expenses. Here’s how an Irrevocable Funeral Trust can help:
- Asset Protection:
- Funds placed in a Medicaid compliant Irrevocable Funeral Trust are not counted as part of an individual’s assets for Medicaid eligibility. This means you can reserve money for funeral expenses without jeopardizing your ability to qualify for Medicaid.
- Spend-Down Strategy:
- If an individual has excess assets that prevent them from qualifying for Medicaid, funding an Irrevocable Funeral Trust can be an effective spend-down strategy. By transferring assets into the trust, the individual reduces their countable resources while ensuring their end-of-life expenses are covered.
- Peace of Mind:
- An Irrevocable Funeral Trust provides certainty that your funeral and burial arrangements are pre-funded and will not burden your loved ones during a difficult time.
Key Considerations for New Jersey Residents
- State-Specific Rules:
- New Jersey has specific guidelines regarding how the funds in an Irrevocable Funeral Trust can be spent. Services ancillary to the funeral costs may not be permitted. Some states also have a maximum contribution limit. It is essential to work with a knowledgeable professional to ensure compliance with these limits.
- Irrevocability:
- Once funds are placed in the trust, they cannot be withdrawn or repurposed. This is a binding arrangement, so careful planning is crucial.
- Choosing a Trustee:
- Select a reputable funeral home or financial institution to manage the trust. Transparency and reliability are key factors to consider. In New Jersey, Funeral Planning CHOICES, the New Jersey Prepaid Funeral Trust Fund is the leading funeral prefunding product in the state and one of the largest prepaid funeral trusts in the country.
Final Thoughts
An irrevocable funeral trust can be a valuable part of Medicaid planning for New Jersey residents. It offers a way to preserve assets, ensure Medicaid eligibility, and relieve loved ones of financial and emotional burdens associated with end-of-life arrangements. However, navigating the complexities of Medicaid and trusts requires careful planning and professional guidance.
If you’re considering an IFT, consult with an elder law attorney or a trusted funeral director to ensure that your trust is properly established and aligned with New Jersey’s requirements.