Irrevocable Funeral Trusts and Prepaid Funerals

Paying for a funeral ahead of time is one of the simplest and most widely used steps in Long-Term Care Medicaid planning. Money set aside in an irrevocable funeral trust or an irrevocable prepaid funeral contract generally does not count toward the asset limit, and spending savings this way is an allowed purchase, not a gift. This guide explains how funeral trusts work, the federal rules behind them, the limits some states impose and the mistakes to avoid.

Figures change periodically. Double-check current amounts before relying on them.

The short version

An irrevocable prepaid funeral arrangement, one that cannot be cancelled for a refund, is generally not counted as an asset for Long-Term Care Medicaid.
A revocable arrangement is counted, except for a small burial fund that many states exclude (often $1,500, following the federal SSI rule).
Burial spaces, such as a plot, crypt, casket, headstone and opening and closing of the grave, are generally excluded regardless of value.
Some states cap the amount that can go into an irrevocable funeral arrangement, and many require that any money left over after the funeral go to the state.
Buying a prepaid funeral is a fair-value purchase, so it does not trigger the look-back penalty.

Why funeral planning matters for Medicaid

A person applying for Long-Term Care Medicaid often has to reduce savings to around $2,000 (single limit in many states). Families naturally want to make sure there will be money for a dignified funeral. Without planning, that money would have to be spent on care first. A funeral trust solves this: the funeral is paid for, the money no longer counts, and the family does not face a large bill later.

The federal rules behind it

Most states follow the federal Supplemental Security Income (SSI) rules for burial assets, which the Social Security Administration explains in its Program Operations Manual System (POMS):

Burial spaces are excluded without a dollar limit. This includes plots, gravesites, crypts, mausoleums, caskets, urns, vaults, headstones and markers, and the opening and closing of the grave, including contracts to buy these items in the future that are paid for (POMS SI 01130.400).
Burial funds set aside for funeral expenses, such as a separate bank account or a revocable funeral contract, are excluded up to $1,500 for an individual (and another $1,500 for a spouse), reduced by certain life insurance and irrevocable arrangements (POMS SI 01130.410).
Irrevocable burial contracts and trusts, which cannot be cashed in, are not a resource at all, because the person cannot get the money back (POMS SI 01130.425).

States can be more generous than SSI, and many have their own rules on funeral trusts. Each state guide notes the state’s limits where they are published.

Types of funeral arrangements

Arrangement	Counted for Medicaid?
Irrevocable prepaid funeral contract with a funeral home	Generally not counted
Irrevocable funeral trust (funeral home or trust company holds the money)	Generally not counted
Funeral insurance policy assigned irrevocably to a funeral home or trust	Generally not counted
Revocable prepaid contract or “burial account” at the bank	Counted, except the burial fund exclusion (often $1,500)
Burial plot, headstone, casket already bought	Not counted (burial space)
Regular life insurance meant for the funeral	Depends on the state’s life insurance rules

How an irrevocable funeral trust works

Choose a funeral home and plan the services: casket or cremation, viewing, service, transportation, flowers, obituary and so on.
Get an itemized statement of the goods and services and their cost.
Sign an irrevocable contract. The money is placed in a trust or an insurance policy assigned to the trust, depending on state law. The contract states that it cannot be cancelled for a refund.
Keep the paperwork. The caseworker will ask for the contract, the itemized statement and proof of payment.
At death, the funeral home provides the services, using the money in the trust.

In many states the contract can be transferred to a different funeral home if the person moves, but it cannot be cashed in.

State caps and leftover funds

Some states limit how much can be placed in an irrevocable funeral arrangement, while others allow any reasonable amount as long as it is tied to specific funeral goods and services. Amounts above the cap may be counted.

Many states also require that if the trust holds more than the funeral ends up costing, the excess goes to the state Medicaid agency (up to what Medicaid paid), rather than to the family. Some require the state to be named as a beneficiary of the excess. This is one reason to have an itemized, realistic plan.

A simple example

Eleanor, 86, has $14,000 in savings over her state’s $2,000 limit. Her family meets with a funeral home and plans a traditional service and burial. She already owns a cemetery plot. The itemized cost of the casket, services, headstone and opening and closing of the grave comes to $11,500. She signs an irrevocable contract and pays for it.

The plot and the burial-space items are excluded. The rest of the funeral is in an irrevocable arrangement and is not counted. Eleanor’s countable savings drop by $11,500, with no penalty, and the funeral is fully planned.

Funeral trusts for a spouse

A funeral can be prepaid for the applicant’s spouse too, and buying one with the couple’s money is an allowed spend-down purchase. This can be especially useful when the couple is over the asset limit even after the spouse at home’s resource allowance.

Funeral trusts and other family members

Prepaying a funeral for an adult child, grandchild or other relative is not an allowed purchase in most cases, and can be treated as a gift. The burial-space exclusion under federal SSI rules does extend to burial spaces for certain immediate family members, but rules differ, so families should check before buying.

Common mistakes

Buying a revocable contract. If it can be cancelled for a refund, it counts (beyond the small burial fund exclusion).
Overfunding. Putting more in than the state allows, or more than the funeral will reasonably cost.
Paying a relative to “hold” the money. Cash given to a child for a future funeral is usually a gift, and it can cause a penalty.
Waiting too long. A funeral trust can be bought during a crisis, but it should be done before the application is filed, so the assets are under the limit on the date it matters.
Losing the paperwork. Without the contract and proof of payment, the caseworker may count the money.

Small whole life policies are excluded in many states, and some families irrevocably assign an existing policy to a funeral home to fund the funeral. Others cash in a policy and use the money for a funeral trust. The best choice depends on the state’s life insurance rules and the policy’s cash value. See Life insurance.

Getting help

Funeral homes handle prepaid contracts every day and can explain the state’s requirements for their contracts. Because a funeral trust is often one step in a wider spend-down plan, a Certified Medicaid Planner can help decide how much to set aside and how it fits with the other steps. Where the trust is a separate legal document rather than a standard funeral home contract, an attorney prepares it.

Checklist before signing

Is the contract clearly irrevocable?
Is there an itemized list of goods and services with prices?
Does the amount fit within any state cap?
What happens to any money left over after the funeral?
Can the contract be moved to another funeral home if the person moves?
Is the money held in a trust or an insurance policy, and who is the trustee or insurer?
Will the funeral home give a copy of the contract and a receipt for the application?

Frequently asked questions

Is a prepaid funeral considered a gift? No. It is a purchase for fair value for the applicant’s own benefit, so it does not cause a penalty.

Can a funeral trust be set up after someone is already in a nursing home? Yes. It is one of the most common steps in crisis planning.

What if the funeral home goes out of business? State laws regulate how prepaid funeral money is held, usually in a trust or insurance policy, to protect consumers. Ask how the money is held before signing.

Does a cremation plan qualify? Yes, irrevocable cremation plans are treated the same way.

Key terms

Burial space: a plot, crypt, casket, urn, vault, headstone or similar item, generally excluded without a dollar limit.
Burial fund: money set aside for funeral expenses, often excluded only up to $1,500.
Irrevocable: cannot be cancelled for a refund.
Goods and services statement: the funeral home’s itemized list of what is being bought and its price.

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.