Medicaid Planning Series 2026 - Asset Protection and the Funeral Trust

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

"Navigating Medicaid's strict asset eligibility requirements can be challenging, but there are legal ways to protect your wealth for your spouse or heirs while meeting these limits," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "In our next series of blogs regarding Medicaid planning, we will cover key approaches to asset protections such as using irrevocable trusts, strategic gifting, purchasing Medicaid-compliant annuities, paying down debt, and converting countable assets into exempt assets, such as home improvements. In today's offering, we'll begin by discussing the mechanics, benefits, and nuances of the irrevocable funeral trust, compare them with Pre-Need Funeral Contracts, and provide clarity on the state regulations governing their use."

Average Funeral Costs in the United States

In 2026, the median cost of a traditional adult funeral, which generally includes a viewing, a vault, and a burial, is projected to range from $8,300 to $9,995. This estimated price typically covers basic professional services from the funeral director and staff, the use of facilities for the viewing and funeral ceremony, a standard casket, and the burial itself.

These expenses can quickly exceed $10,000 depending on factors such as the funeral home's geographic location, its reputation and pricing structure, and any additional or upgraded services requested by the family. For example, the inclusion of customized or premium caskets, intricate floral displays, extended visitation hours, transportation for family members, obituary notices placed in multiple publications, and permanent monument markers can all contribute to the overall cost. When families opt for more personalized touches or enhanced services, it is not uncommon for the total cost to exceed $12,000. This financial reality underscores the importance of careful planning and consideration when making funeral arrangements.

Cremation is frequently regarded as a more affordable alternative to traditional burial; however, the median cost for a funeral with cremation—including a viewing, memorial service, and necessary professional services—is estimated to range from $6,250 to $6,280 in 2026. This figure generally encompasses the cost of cremation itself, the use of facilities for visitation and services, a basic urn, and required documentation or permits.

The final expense can vary widely depending on the region, the specific funeral home selected, and the range of additional services or merchandise chosen, such as upgraded urns, memorial keepsakes, or specialized ceremonies. Recognizing these variable costs illustrates why proactive prearrangement and secure financial planning are essential for families, as they help ensure that wishes are honored and unexpected financial burdens are minimized.

What Is an Irrevocable Funeral Trust?

An irrevocable funeral trust (IFT) is a specialized legal and financial vehicle that enables individuals to set aside designated funds specifically for anticipated end-of-life expenses. In this arrangement, the grantor contributes a predetermined sum of money to a trust account. This account is then managed by a trustee who assumes fiduciary responsibility, ensuring that the funds in the trust are managed in accordance with both state regulations and the terms established at the trust’s inception.

The primary objective of an IFT is to provide for the payment of the grantor’s future funeral, burial, or cremation expenses. By doing so, it relieves surviving family members of the emotional and financial burdens often associated with making funeral arrangements during a period of grief, and assures that the grantor’s specific wishes regarding their final arrangements are honored.

Once established, the terms of an IFT are legally binding and cannot be modified, revoked, or dissolved by the grantor under any circumstances. This irrevocability provides assurance to both the grantor and beneficiaries that the funds will be used exclusively for their intended purpose.

The permanent and unalterable nature of an IFT is significant in Medicaid planning. Medicaid, a government program that provides healthcare assistance to eligible low-income individuals, imposes strict asset and income limits for program qualification. Only assets placed in irrevocable trusts, such as IFTs, are exempt from these limits. By establishing an IFT, the grantor can effectively remove the designated funeral funds from their countable assets, which may help preserve eligibility for Medicaid benefits while still ensuring that adequate resources are available to cover funeral and burial or cremation costs.

It is essential, however, that the trust is structured in full compliance with all relevant federal and state Medicaid rules and that the funds are used solely for allowable funeral expenses. In this way, the IFT simultaneously safeguards the financial interests of the grantor’s estate, honors their final wishes, and supports the grantor’s eligibility for critical government benefits.

Establishing an IFT

To establish an IFT, the individual works with a trustee. The grantor determines the trust amount based on anticipated funeral expenses, often with guidance from a funeral director. Common steps include:

• Consulting with a funeral professional to estimate the cost of the desired services and merchandise

• Completing trust documentation to make the trust irrevocable

• Choosing a trustworthy trustee and designating beneficiaries (most often the funeral service provider)

• Funding the trust through a single payment or structured deposits

  
  

Once the trust is funded, the grantor relinquishes control over the assets. Upon their passing, the trustee pays the funeral expenses directly to the service provider, in accordance with documented wishes. Any residual funds left after funeral expenses are typically returned to Medicaid or the state, not to family members.

Benefits of Funeral Trusts

There are many benefits of a funeral trust. These include:

Financial Security: The trust protects dedicated funeral funds from being used for other purposes or claimed by creditors, ensuring that the grantor’s wishes are fulfilled.

Medicaid Compliance: By exempting these assets from countable resources, an IFT enables applicants to meet Medicaid’s asset test without losing the ability to prepay for dignified funeral arrangements.

Peace of Mind for Families: Loved ones are spared the emotional and financial strain of making urgent decisions or facing unexpected costs during a time of grief.

Personalization and Control: The grantor can outline specific preferences, such as choice of casket, service type, and burial location, ensuring their wishes are respected.

Price Protection: Funds set aside today can offset future price increases for funeral services and merchandise.

What Expenses Can Be Paid with a Funeral Trust?

Irrevocable funeral trusts can cover a comprehensive list of end-of-life expenses, such as:

• Funeral director’s fees and staff services

• Preparation and embalming of remains

• Viewing/visitation and memorial service costs

• Casket, urn, or burial container

• Burial plot, vault, or cremation services

• Grave marker or headstone, including installation

• Hearse and transportation for family/attendees

• Obituary placements in newspapers or online

• Clergy or officiant fees

• Flowers, printed programs, and other memorial items

• Perpetual care of the gravesite (where permitted)

It is critical to verify with the trust provider and state Medicaid office, as allowable expenses can differ by jurisdiction. Some states may restrict payment for certain items (like flowers or grave maintenance).

The Maximum Amount Allowed for a Funeral Trust

There is no federal cap on the amount you may place in an IFT, but each state sets its own maximums for Medicaid-exempt funeral trusts. Common limits range from $10,000 to $15,000 per person, but some states allow higher amounts, particularly if local funeral costs are higher. Exceeding your state’s maximum may result in excess funds being counted toward Medicaid’s asset limit, so it is essential to consult with a knowledgeable elder law attorney.

Pre-Need Funeral Contracts: Medicaid Compliance and Key Differences

Pre-Need Funeral Contracts are another planning tool, distinct from IFTs. These contracts are created directly with a funeral home and specify the exact services and merchandise to be delivered. Pre-Need Contracts may be revocable or irrevocable; only irrevocable contracts qualify as Medicaid-exempt, as they cannot be canceled or refunded for cash to the contract holder or their family. Key differences include:

• Pre-Need Contracts are tied to a specific funeral home, whereas IFTs are not, offering more flexibility in provider choice or relocation.

• Both arrangements allow prepayment and Medicaid compliance, but IFTs may offer greater portability if you move out of state or change funeral homes.

• Pre-Need Contracts lock in services and prices at the chosen funeral home, while IFTs can be used to pay any provider, subject to terms.

  
  

Both solutions offer peace of mind and financial protection, but your choice may depend on your need for flexibility and desire to select a particular funeral provider in advance.

Are Irrevocable Funeral Trusts Allowed in Every State?

While most states allow the establishment of irrevocable funeral trusts for Medicaid planning, there are variations in the rules governing them. The majority of states recognize IFTs and exclude their value from Medicaid asset calculations, but the process, documentation requirements, allowable funding, and covered expenses may vary. A few states impose stricter guidelines, so it is crucial to consult an elder law attorney with experience in Medicaid planning. Always review up-to-date state regulations before funding a trust to ensure compliance.

A Final Word

"Irrevocable funeral trusts provide a practical and compassionate way to safeguard assets, comply with Medicaid rules, and ensure that funeral expenses are handled according to your wishes," said Attorney Connelly. "Whether you choose an IFT or a Pre-Need Funeral Contract, thoughtful planning relieves your loved ones of uncertainty and financial stress during a difficult time. Because funeral planning laws and Medicaid regulations are complex and frequently updated, always seek advice from professionals who specialize in elder law, Medicaid, and end-of-life planning in your state."

The information presented within this blog is intended exclusively for general informational purposes and should not be construed as legal, financial, or healthcare advice. The content, materials, and insights provided may not reflect the most recent developments in these fields and, therefore, should not be relied upon for personal or professional decisions. Further, this blog may contain links to third-party websites, which are included solely for the convenience of our readers. It is essential to note that Connelly Law Offices, Ltd. does not automatically endorse or recommend the contents of these external sites. Given the complexities and nuances of legal, financial, or healthcare matters, we strongly encourage individuals to consult a qualified attorney, a professional fiduciary advisor, or a healthcare provider regarding any specific issues or concerns. Your well-being and informed decision-making are of paramount importance to us.