Planning for irrevocable funeral trust funding is a smart way for Arizona families to lock in funeral and burial expenses while preserving Medicaid eligibility. At Copper State Planning, we draft Medicaid-compliant irrevocable funeral trusts that shelter assets, lighten the load on loved ones, and dovetail with your broader estate-plan goals. Explore how our trust-focused practice area works and see our detailed guide to Arizona irrevocable trusts for deeper background.
Because funeral trusts are separate legal entities, money that would otherwise count against the Medicaid asset limit can be shifted into a formal trust fund before you apply. Done correctly, such a trust meets Medicaid’s asset rules, remains outside probate, and guarantees that funeral expenses are paid on time.
What Is an Irrevocable Funeral Trust?
An irrevocable funeral trust (IFT) is a legally binding services agreement—often funded by a single-premium payment from a life insurance policy—that permanently sets aside cash for funeral and burial needs. IFTs are sometimes called irrevocable funeral expense trusts in Medicaid guidance. Once the money is deposited, the trust owns the funds; the grantor cannot maintain ownership or revoke the trust. Because the trust fund owns the asset, it is no longer “countable” when determining Medicaid eligibility.
IFTs may be created by an individual, a married couple, or a non-applicant spouse seeking to protect excess assets. Arizona Medicaid (AHCCCS) treats a properly drafted IFT as Medicaid-compliant, and transfers into the trust are exempt from the five-year look-back period that causes Medicaid ineligibility.
Estimating Funeral and Burial Expenses in Arizona
When budgeting for end-of-life expenses, before funding an IFT, you must price out realistic funeral and burial costs: casket or urn, burial plot, headstone, chapel rental, flowers, obituary fees, and clergy or funeral director charges. Many families also include travel stipends so family members can attend. Overfunding can trigger excess assets problems; under-funding leaves a gap that your estate must cover later.
Managing Funeral Expenses Through an Irrevocable Funeral Trust
- Determine countable assets vs. the community spouse resource allowance (if married).
- Engage an elder law attorney to draft a legal agreement using Arizona statutes and Medicaid rules.
- Select an insurance company that issues single-premium, “preneed” final expense insurance or limited-pay contracts.
- Fund the trust; the trust pays only funeral and burial expenses and related goods and services.
- Keep proof of the formal trust fund with your estate documents so the state Medicaid office can verify compliance.
- The trustee operates under two legal agreements: the trust document and the preneed contract.
Choosing a Funeral Home and Funeral Services Company
Although an IFT is provider-agnostic, you still need a reputable funeral home or integrated funeral services company able to honor the pre-need funeral contracts you outline. Compare itemized statements, inquire about bundled funeral plans, and confirm the firm will coordinate with the trustee when the time comes. Unfortunately for consumers, Arizona funeral homes vary in price transparency.
Role of the Insurance Company in Funding an Irrevocable Funeral Trust
A single-premium life insurance or burial insurance contract is the most common vehicle. The insurance company issues the policy, assigns ownership to the trust, and the fund collects guaranteed cash-value growth. Because the trust fund (not the insured) owns the policy, the trust funds the burial via the trustee, who then makes the payments to cover approved funeral costs.
Eligible Funeral and Burial Services
Under Arizona Medicaid policy, an irrevocable funeral expense trust may pay for:
- Funeral and burial services (grave-side or memorial)
- Cremation and urn costs
- Burial expenses such as vaults, markers, and perpetual-care fees
- Chapel rentals at the chosen funeral home
- Transportation and lodging for family members
- Clergy honoraria and associated services
- Other qualifying irrevocable burial arrangements, such as prepaid plots
Benefits of an Irrevocable Funeral Trust
- Meets Medicaid eligibility requirements by reducing countable assets (Unlike other irrevocable trusts, an IFT is narrowly focused on funeral costs)
- Locks in unpredictable end-of-life costs and burial services pricing
- Shields funds from creditors and probate delays
- Gives beneficiaries clear direction, minimizing disputes over funeral arrangements
- Let’s you qualify for Medicaid without hurried “spend-down” maneuvers
Considerations, Drawbacks & Medicaid Planning Tips
Funding is irrevocable. Once assets are transferred, you cannot reclaim them.
IFTs must stay Medicaid-compliant. Overfunding may create medicaid coverage delays.
Choose a solvent trustee. An unreliable corporate fiduciary could jeopardize payouts.
IFTs are narrow. They cover funeral trusts only; they don’t address nursing-home Medicaid income limits or broader estate-tax issues.
Compared to a revocable funeral trust. A revocable version offers flexibility but loses the Medicaid shield.
When thoughtful, an IFT is an elegant answer to how irrevocable funeral trusts help applicants meet Medicaid’s asset limit while protecting dignity at life’s close.
Alternatives to Irrevocable Funeral Trusts
| Alternative | Key Points | Medicaid Impact |
|---|---|---|
| Pre-paid Funeral Burial Contracts | Direct contract with a funeral home for fixed-price services | Counts as an asset unless irrevocable under state law |
| Revocable Funeral Trust | Flexibility to amend or cancel; useful for uncertain funeral planning | Still a resource for Medicaid eligibility purposes |
| Prepaid Funeral Burial Contracts (Irrevocable) | Similar to IFT but owned by the provider; sometimes called irrevocable prepaid burial contracts | Usually exempt, but verify with state Medicaid office |
| Burial Insurance / Final Expense Insurance | Small face-amount policy payable to the trustee | Exempt up to $1,500 in cash value; excess may be a resource |
- Simple savings accounts earmarked for burial lack Medicaid protection
Medicaid and Irrevocable Funeral Trusts
Arizona adopts the Uniform Probate Code and integrates IFT rules in Ariz. Admin. Code § R9-28-403. Because an IFT is a separate legal entity, the trust pays funeral and burial expenses only, leaving other estate assets intact for heirs. That keeps applicants within the asset limit and avoids medicaid ineligibility due to last-minute transfers. It should be noted that IFTs do not solve Medicaid’s monthly income limit, but they do reduce countable assets.
Secure Your Legacy with an Irrevocable Funeral Trust
An irrevocable funeral trust is a focused tool that protects assets, simplifies funeral planning, and helps Arizonans qualify for Medicaid without sacrificing dignity or peace of mind. If you’d like to integrate an IFT or explore revocable trust and broader medicaid planning strategies, our team can help.
Need help with Arizona estate planning? Schedule a consultation today.
Frequently Asked Questions
Can an irrevocable trust deduct funeral expenses?
The estate may deduct those costs on IRS Form 706 when the trustee pays approved funeral expenses directly.
What happens when you inherit money from an irrevocable trust?
Distributions bypass probate; the trust’s beneficiary receives funds per the trust terms, free of creditor claims in most cases.
How is an irrevocable trust distributed after death?
The successor trustee follows the deed of trust, pays burial costs, taxes, and then releases remaining assets to named beneficiaries.
This material is for educational purposes only. It does not create an attorney-client relationship, nor is it legal advice. Consult a qualified Arizona estate-planning or elder law attorney for counsel tailored to your situation.
