Funeral Trusts Explained: Introduction
The Internal Revenue Service defines a funeral trust as “a ‘pooled income fund’ to which a person transfers property to cover funeral and burial costs.” It’s a way to cover funeral expenses in advance and ease the burden on survivors to make difficult decisions. What’s more, special rules that govern funeral trusts make them an attractive way to protect your assets from Medicaid and other creditors. It’s an often-overlooked tool that should be considered for your insurance planning.
A funeral trust is set up through an insurance company as a way to protect a portion of an insured’s assets to pay for funeral expenses.
Funeral trusts are available to everyone up to age 99 with only one health question.
A policy can be written for amounts starting at $500 in some states.
The maximum amount varies by state.
In Wisconsin, funeral trusts can be written for up to $15,000 (as of 2011).
Revocable vs. Irrevocable Funeral Trusts: An Important Difference!
Understanding the two different types of funeral trusts is essential to choosing the right type for your needs.
Two types of trusts are: Irrevocable and Revocable.
Revocable trusts, as the name implies, can be dissolved by the person who originally created it or by a designated person or entity AT ANY TIME.
While this sounds like a great option, there are some issues of which you should be aware.
Revocable trusts don’t receive favorable tax treatment and are not exempt from confiscation from hospitals, doctors, nursing homes and other health care providers.
Medicaid spend-down rules will be imposed on the trust before Medicaid covered nursing home care is provided.
Irrevocable trusts can’t be dissolved, not by the creator nor any other designated entity.
The funds can’t be accessed until the terms of the "trust" are satisfied.
That means that the creator must pass away before the assets are paid out.
Because of that requirement, irrevocable trusts are superior in that they aren’t subject to Medicaid spend-down rules and the assets can’t be paid out until AFTER the trust pays for funeral expenses.
Medicare Supplement Insurance Plan Disclosures
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Plans may be available to persons eligible for Medicare by reason of disability.
All plans may not be available in your state/area.
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