How a Funeral Expense Trust Can Help You Protect Assets and Qualify for Medicaid

When it comes to qualifying for Medicaid, many families worry about spending down their assets to meet the program’s strict eligibility rules. One often-overlooked strategy? Prepaying for final expenses through a Funeral Expense Trust—a smart, Medicaid-exempt way to protect assets and plan ahead.

Let’s take a closer look at how a Funeral Expense Trust works and how it can help you or a loved one preserve funds while securing essential long-term care coverage.

Meeting Medicaid Spend-Down Limits with a Funeral Trust

To qualify for Medicaid, applicants must meet stringent income and asset limits, which vary by state. In general, the person applying for Medicaid can only have around $2,000 in countable assets. For married couples, the healthy spouse can usually retain a larger share, sometimes over $100,000.

But not every asset counts toward these limits. Medicaid allows for certain non-countable or exempt assets—things like a primary residence, one vehicle, personal belongings, and, importantly, prepaid funeral plans through an irrevocable trust.

This is where the Funeral Expense Trust becomes especially valuable.

Read more: How to Save on Nursing Home Costs

What Is a Funeral Expense Trust?

A Funeral Expense Trust is an irrevocable trust designed to set aside funds specifically for funeral and burial expenses. Once established, the trust funds are exempt from Medicaid’s asset limits, protected from estate recovery (in most states), and immediately available to cover final expenses when the time comes.

Here’s how it works: you set aside a specific amount (usually up to $15,000, though this varies by state and provider) in an irrevocable trust. These funds are then used solely to cover funeral and burial costs. Because the trust is irrevocable—meaning it can’t be changed or accessed for other reasons—Medicaid does not count it as an available asset.

Benefits of a Funeral Expense Trust

Prepaying for funeral expenses might not be top-of-mind when thinking about long-term care planning, but it provides several benefits:

• Asset Protection: The most immediate benefit is protecting your money. If you’re above Medicaid’s asset limit, placing funds in a Funeral Expense Trust allows you to reach your Medicaid spend-down goal in a way that doesn’t penalize you or jeopardize your eligibility.
• Avoids Medicaid Penalties: Transfers to a properly structured prepaid funeral plan are not considered divestments. That means you can fund the trust right before applying for Medicaid without triggering a penalty period.
• Peace of Mind for Loved Ones: By planning ahead, you relieve your family of the financial and emotional burden of making funeral arrangements in a time of grief. The trust ensures that your wishes are carried out—and paid for—without stress or delay.
• Quick Access to Funds: Unlike other estate assets that may be tied up in probate, the Funeral Expense Trust provides immediate liquidity. Your loved ones can access the funds quickly to cover necessary costs without waiting for estate proceedings.

Read more: What Is a Medicaid Compliant Annuity?

Creating a Funeral Expense Trust

Setting up a Funeral Expense Trust is typically straightforward. Many insurance carriers offer these policies that are then assigned to the trust, ensuring the funds are used exclusively for funeral expenses. Some funeral providers also offer pre-need insurance policies that can be Medicaid-exempt when properly structured.

When choosing a provider, it’s important to confirm that the trust is irrevocable and the face value is within your state’s allowable limit for Medicaid exemption. An experienced professional can ensure everything is structured correctly and compliant with Medicaid rules.

How We Can Help

Even if your loved one is already receiving long-term care, it’s not too late to protect what they have left.  Tell us about your situation and discover your options.