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Funeral Planning

Talking about funeral arrangements isn’t easy. But for families dealing with aging or illness, making these decisions in advance is one of the most meaningful things you can do, both for your loved ones and for yourself.

There are two main ways to plan for funeral arrangements ahead of time: preneed insurance and a funeral expense trust. Understanding the different ways each one works can help you choose the right approach for your situation.

Preneed Insurance

Preneed insurance involves working directly with a funeral home to arrange and pay for services in advance. You choose the specific services, merchandise (such as a casket or urn), and any other arrangements, and you pay for them ahead of time, either in a lump sum or in installments.

The main advantages of preneed insurance include:

  • Your wishes are documented and communicated to the funeral home directly.
  • Family members are relieved of making difficult decisions during an already difficult time.
  • Funds are held in a whole life insurance policy until they are needed.

One thing to be aware of: if you move or change your mind, preneed contracts can sometimes be difficult to transfer or cancel, depending on the funeral home and your state’s laws. It’s worth understanding the terms before signing.

Funeral Expense Trust

A funeral expense trust (FET) is a different approach. Rather than paying a specific funeral home in advance, you set aside funds in a dedicated trust that is designed to cover funeral and burial expenses when the time comes. The funds remain in the trust until death, at which point they are used to pay for services.

FETs are particularly relevant for families thinking about Medicaid, because funds held in an irrevocable funeral expense trust are generally not counted as assets for Medicaid eligibility purposes. This can make an FET a useful part of a broader Medicaid planning strategy.

Here are a few key aspects of FETs to keep in mind:

  • The trust must typically be irrevocable to qualify for Medicaid asset exclusion.
  • There may be limits on how much can be set aside, depending on your state.
  • The funds are dedicated to funeral and burial costs and cannot be used for other purposes.
  • Unlike preneed insurance, an FET is not tied to a specific funeral home.

Not sure where to start? Don't worry—many people are unsure where to begin or whether they're the right fit for any type of long-term care planning. This is where your local elder law attorney comes in. Find a qualified resource in your area now.

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