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Irrevocable Funeral Trusts Give Seniors More Options

As if life isn't difficult enough for many seniors, the Deficit Reduction Act of 2005 (DRA) -- signed into law by President George W. Bush in February 2006 -- has further reduced senior citizens' opportunities to reposition their assets. Among other issues, the DRA extends the look-back rule from 36 months to 60 months.

With the 2006 DRA, seniors can no longer give away or otherwise dispose of their financial assets during the 60-month window just prior to being admitted or confined to a long term care or nursing home facility.

Before the government will pay for medical and custodial care, the Medicaid authorities will investigate if the individual has the financial capability to pay for his or her own care. If they do not have a spouse and if they own a home; an automobile; or a collection of jewelry or silverware; stocks, bonds, CDs, U.S. savings bonds, old paid-up insurance policies with a cash-in value in excess of $1,500, or any other valuable financial resources, these assets must first be liquidated -- not necessarily at their fair market value -- and the monies from these assets must be spent down for care and custodial expenses. The individual is allowed to keep their wedding ring and a cash amount not to exceed $2,000. Additionally, any sources of regular income such as pension payments or Social Security monthly benefits must be signed over to the organization providing the care.

Any assets disposed of during that prior five-year period will be considered a countable asset -- still belonging to the individual -- for the purposes of determining eligibility for public assistance. In essence, the assets, or their cash equivalent at the time of disposition, must be returned to the original owner and used to pay for their care until these funds are spent down to approximately $2,000. This is hardly a sufficient amount to pay for a proper, dignified burial for the deceased, with current funeral expenses requiring $7,000 or more.

What's a person -- or their family -- to do to plan ahead for funeral costs and still comply with the new terms of the DRA? One option is to obtain an irrevocable funeral trust (or IFT)* as soon as possible.

For seniors trying to plan ahead, five years can seem to be an eternity. Many seniors who start out with a minor medical condition often see it escalate quickly to become a catastrophic event within a short time, sometimes within a year. Soon, dementia, Alzheimer's disease, or a debilitating physical problem such as a broken bone that will not properly heal relegates the patient to custodial care for the remainder of their life. An individual who previously enjoyed relatively good health can deteriorate very quickly if diagnosed with certain conditions. At that point, it is too late for them or their guardians to reposition their assets -- except to purchase an irrevocable funeral trust.

An IFT is a tool that prevents an individual's assets from being confiscated or forced to be spent down in order to receive government assistance in paying for care over an extended period in a nursing home or long term care facility. An IFT also protects those monies from being sought out by doctors, lawyers, drug stores, or any other providers or entities that would seek payment for bills or for any other purpose. A person facing serious health or mental challenges hardly needs to have bill collectors harass them for legitimate or illegitimate charges for any type of service.

By placing up to $12,500 in an IFT, the money is preserved from those seeking reimbursement for bills or expenses. A good rule of thumb concerning IFTs is that if a person doesn't have long term care insurance (LTCI) and cannot afford an LTCI policy, they should obtain an IFT. It is estimated that more than 90 percent of all seniors do not have LTCI. Since an IFT is an irrevocable trust, no one -- not even the insured -- can access these monies until that person has passed away.

An IFT is issued by a select group of insurance carriers. The IFT is a single premium whole life policy that is wrapped into an irrevocable trust by the carrier immediately upon issue. The carrier also creates and absorbs the costs for creating the actual trust document, eliminating the complications, time, and costs of retaining an attorney.

Even more conveniently, the insurance carrier also assigns a company officer as a trustee of the IFT. Upon the insured's passing and the trustee's receipt of legal proof of the death, as well as an invoice for the expenses associated with the proper disposition of the deceased by a funeral home or other authorized agency, the carrier will issue a check, usually within 24 to 48 hours. If there are any remaining funds in the trust after all the final expenses are paid for, they are returned to the estate of the deceased.

Since the insured is paying the entire cost for the IFT in advance, there is no need for underwriting, further expediting the IFT issuing process. It is issued for individuals up to 99 years of age. There is also a guaranteed issue provision for those applicants already in a custodial situation. In many states, seniors seeking to reposition additional assets can purchase IFTs for their children, helping them shield additional financial resources.

A major benefit of the IFT is that it can be used for any final expenses. There are up to double-digit percentage comm-issions that you can earn, depending on the age of the applicant.

An IFT is the one of the last and only remaining legal methods to reposition assets so that the individual can enjoy peace of mind.

Jack Quinn is the founder and operator of He can be reached via email at

* It is recommended that an individual always consult with an elder law attorney for the specific Medicaid rules in their state of residence.

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