Irrevocable Funeral Trusts: What They Are + How They Work

Irrevocable funeral trusts help people plan and pay for future funeral or burial needs while protecting Medicaid eligibility. They also reduce stress for families by setting funds aside in a controlled way.

This guide explains how irrevocable funeral trusts work, what they cover, when they may help, and what you should consider before setting one up.

Planning for both long-term care and end-of-life expenses can feel overwhelming. The team at After is here to guide you through your options with transparency, care, and zero pressure. You can call us 24/7 at 1-844-760-0427.

‍

{{cta_blue}}

‍

What Are Irrevocable Funeral Trusts?

An irrevocable funeral trust is a legal agreement that sets aside money for funeral or burial expenses. Once you create the trust, it cannot be changed, canceled, or refunded. The money stays in the trust until it is used after the person passes away.

Families often choose these trusts to prepay funeral costs or to help qualify for Medicaid. Because the trust is irrevocable, Medicaid no longer counts the money as part of the person’s assets.

How Irrevocable Funeral Trusts Help With Medicaid Eligibility

Medicaid has strict rules about how much money and property someone can own and still qualify. In many states, a single person must have less than about $2,000 in countable assets.

If someone has more than the limit, they can place extra funds into an irrevocable funeral trust. Once the money is in the trust, it no longer counts toward Medicaid’s asset limit. This can help the person qualify for coverage.

Important things to know:

• Medicaid has a five-year look-back period. Giving money away during this time can cause penalties, but irrevocable funeral trusts are allowed.
• Married couples can set up one trust for each spouse.
• Some states require a Goods and Services Statement showing that the trust amount matches expected funeral costs.

Because of these rules, irrevocable funeral trusts are one of the few safe ways to reduce assets without breaking Medicaid guidelines.

Do All States Allow Irrevocable Funeral Trusts?

Almost every state allows irrevocable funeral trusts for Medicaid planning. The two exceptions are Michigan and New York.

Michigan and New York do not accept these trusts for Medicaid eligibility. Instead, they allow Irrevocable Pre-Need Funeral Agreements, also called prepaid funeral contracts. These agreements must be purchased directly from a funeral home rather than set up as a separate trust.

State Funding Limits

States that allow irrevocable funeral trusts may set limits on how much money you can place in them. These limits often range from a few thousand dollars to $15,000 or more. The amount depends on local funeral costs and state rules. Some insurance companies may also set their own limits.

California's Special Rules

California has different Medicaid rules from most states. As of January 1, 2024, California removed asset limits for long-term care Medicaid.

However, starting January 1, 2026, asset limits will return. A single person will be allowed up to $130,000 in assets.

Because of this change, California residents should think carefully about timing when planning with an irrevocable funeral trust.

What Irrevocable Funeral Trusts Can Pay For

Irrevocable funeral trusts can cover a wide range of funeral or burial expenses. While each state sets its own rules, most allow payment for:

• Funeral home services
• Clergy or officiant fees
• Service staff charges
• Death certificates
• Embalming
• Caskets or burial vaults
• Urns
• Cemetery fees
• Dressing and preparation
• Headstones
• Obituary notices
• Transportation, including hearses or limousines

Confirm specific rules with a Medicaid planning professional in your state.

How Irrevocable Funeral Trusts Work 

The process is simple, but details matter:

1. Confirm Medicaid needs: Find out how much your assets exceed your state’s Medicaid limit.
2. Estimate funeral costs: Choose an amount that closely matches expected expenses. Putting in too much is not helpful.
3. Set up the trust properly: Some states require a funeral director to confirm costs using a Goods and Services Statement.
4. Make the trust irrevocable: This is what makes the funds noncountable for Medicaid.
5. Keep records: You will need proof of the trust when applying for Medicaid.

Many families work with Medicaid planners because rules change often, and small mistakes can delay approval.

Benefits of Irrevocable Funeral Trusts

Irrevocable funeral trusts offer practical and financial advantages that often matter most during long-term care planning.

1. They Help With Medicaid Eligibility

Irrevocable funeral trusts convert countable assets into exempt assets. This shift can determine whether someone qualifies for Medicaid. Many older adults hold savings slightly above their state's limit, and a trust gives them a compliant way to meet the requirement.

2. They Prevent Cost Burdens for Families

These trusts set aside dedicated funds for funeral expenses. Families do not have to scramble, borrow, or guess at last-minute decisions. The trust can cover major costs like cemetery fees, cremation, or transportation, which reduces financial pressure.

3. They Are Not Tied to a Specific Funeral Home

Most pre-need contracts bind families to one funeral home. Irrevocable funeral trusts do not. Any funeral home in the United States can handle the arrangements, which gives families more control if circumstances change.

4. They Avoid Look-Back Penalties

Irrevocable funeral trusts do not trigger Medicaid look-back penalties. This makes them one of the few safe ways to move funds out of countable assets during the five-year review period.

5. They Protect Funds

Funeral homes can merge, close, or change ownership. When money is tied to a funeral home contract, families may face risks. Irrevocable funeral trusts keep funds separate, so the money remains protected even if a funeral home goes out of business.

6. They Allow Families To Plan Without Choosing Details Early

These trusts let families set aside money without picking items like urns or caskets far in advance. This keeps planning flexible while handling the financial piece.

7. You Can Use Them With Other Planning Tools

Because the trust only covers funeral or burial costs, it can sit alongside life insurance, burial allowances, or other Medicaid spend-down plans.

These benefits make irrevocable funeral trusts a strong choice for many families. However, they are not the right fit for everyone.

When Irrevocable Funeral Trusts May Not Be A Good Fit

While irrevocable funeral trusts offer clear benefits for Medicaid planning, they're not the right choice for everyone.

They may not be ideal when:

• Medicaid planning is not part of your goals.
• You want to change plans later, since the trust is permanent.
• You prefer a custom trust created by an attorney.
• You live in Michigan or New York, where Irrevocable Pre-Need Funeral Agreements serve as the alternative.

The key point: Once you place funds in the trust, you cannot use them for anything other than funeral or burial expenses. This permanence requires careful consideration before moving forward.

Irrevocable Funeral Trusts vs. Pre-Need Contracts

People often compare irrevocable funeral trusts with pre-need funeral contracts because both help prepare for end-of-life arrangements.

Irrevocable Funeral Trusts

Irrevocable funeral trusts offer more freedom and flexibility. They work well for Medicaid planning because they become noncountable and avoid look-back issues.

• More portable
• Not tied to a specific funeral home
• Do not lock in prices or specific items
• Medicaid-compliant when set up correctly
• Safer if you move
• Protected even if a funeral home closes

Pre-Need Funeral Contracts

Pre-need contracts appeal to people who want locked-in pricing and expect to stay in the same area.

• Purchased directly from a funeral home
• Guarantee prices at purchase
• Tie you to that funeral home
• Can lose value if the funeral home closes
• Often require selecting goods and services in advance

Putting the Two Options in Context

Some families use both tools, one for Medicaid planning and one for specific funeral decisions. Others skip pre-need contracts and rely on an irrevocable funeral trust for financial protection with more flexibility.

The right choice depends on your budget, state rules, and how much control you want over funeral details now or later.

Costs and Professional Support

Setting up an irrevocable funeral trust usually does not involve large upfront fees. Medicaid planners often include setup in their services. Some states may charge a small fee when a Goods and Services Statement is required.

Professional support is valuable because mistakes can cause delays or denial. State rules change often, and each trust must meet strict criteria.

Planning for Both Long-Term Care and End-Of-Life Needs

Irrevocable funeral trusts serve as a practical Medicaid planning tool when you need to reduce countable assets while preparing for future funeral or burial needs. They protect assets, follow Medicaid rules, and reduce stress for families.

But they are rigid, and they make the most sense when long-term care Medicaid is part of your planning strategy.

Once you set up an irrevocable funeral trust, you still need to decide what kind of services you want. Many families choose cremation because it is simple and costs less than burial. Lower costs also mean you can fund your trust with less money, which leaves more flexibility in your overall plan.

After specializes in prepaid cremation services that align with straightforward planning goals. 

We help families lock in today's rates while removing financial uncertainty from loved ones. When structured as irrevocable arrangements, prepaid cremation can work alongside Medicaid planning to address both healthcare coverage and end-of-life needs.

The key is understanding how each planning tool fits together, whether that's an irrevocable funeral trust, prepaid cremation, or both.

Not sure which approach meets your needs? The After team is here to guide you through your options with transparency, care, and zero pressure. You can call us 24/7 at 1-844-760-0427.

‍

{{cta_blue}}

‍

Frequently Asked Questions About Irrevocable Funeral Trusts

Can I Cancel an Irrevocable Funeral Trust?

No, you cannot cancel an irrevocable funeral trust once it is set up. The word “irrevocable” means the decision is permanent. After you make the trust, the money can only go toward funeral or burial expenses.

This permanent structure is what makes the trust Medicaid-compliant. Because you give up control of the funds, Medicaid no longer counts the money as part of your assets.

How Much Money Should I Put in an Irrevocable Funeral Trust?

You should put in an amount that reasonably matches expected funeral or burial costs. Most states set maximum limits, often ranging from a few thousand dollars to $15,000 or more, depending on local costs and regulations.

Putting in too much money is usually not helpful. If there are leftover funds after funeral expenses are paid, that money typically goes to the state Medicaid program. Working with a Medicaid planner can help you choose an amount that fits both your needs and state rules.

What Happens to Leftover Funds in the Trust?

Leftover funds usually go to the state Medicaid program if funeral costs are lower than expected. Medicaid rules generally require any remaining money in the trust to be paid to the state to help cover long-term care costs.

Because of this, it’s important to avoid overfunding the trust. Many families aim to cover necessary expenses without leaving a large balance behind.

Can I Use an Irrevocable Funeral Trust if I Want Cremation?

Yes, you can use an irrevocable funeral trust if you want to pay for cremation. The trust can cover cremation services, urns, transportation, death certificates, and other related expenses.

Because cremation typically costs less than burial, families can often fund the trust with a lower amount while still covering all necessary services.

Do Irrevocable Funeral Trusts Work for Married Couples?

Yes, married couples can each set up their own irrevocable funeral trust. Each spouse’s trust is treated separately for Medicaid purposes and is used to pay for that individual’s funeral or burial costs.

This approach allows both spouses to reduce countable assets while staying within Medicaid rules.

What's the Difference Between an Irrevocable Funeral Trust and Life Insurance?

The difference between an irrevocable funeral trust and life insurance is that the trust specifically pays for funeral or burial expenses and does not count toward Medicaid asset limits.

Life insurance, on the other hand, often counts as an asset for Medicaid if the total face value exceeds certain limits, which vary by state.

Because of this, irrevocable funeral trusts usually offer more flexibility and protection for Medicaid planning than most life insurance policies.

Will My Irrevocable Funeral Trust Transfer if I Move to Another State?

Yes, your irrevocable funeral trust transfers if you move to another state. The funds can be used by any licensed funeral home in the United States, regardless of where the trust was originally set up.

This portability makes irrevocable funeral trusts more flexible than many prepaid funeral contracts, which often tie families to a single funeral home.

How Long Does It Take To Set Up an Irrevocable Funeral Trust?

Setting up an irrevocable funeral trust usually takes a few weeks. The timeline depends on state requirements, whether a Goods and Services Statement is needed, how quickly documents are completed, and the availability of a Medicaid planner.

Once you establish the trust, it can immediately become part of Medicaid planning.