How FETs Work
How Funeral Expense Trusts work
A funeral expense trust is built on a whole life chassis, made irrevocable, and pointed at one job: getting the funeral home paid in a day or two instead of a month or two.
The money flow
How the trust is funded
One premium moves the money out of the client’s countable assets and into a trust that has one permitted use.
Every funeral trust is assigned into the same master trust, so there is no separate trust document to draft and no attorney involved.
1035 exchange
Or reposition a policy they already own
Because the trust is built on a whole life chassis, it can be funded by 1035 exchange. The cash value sitting in a life insurance policy your client already owns moves into the trust policy, and that policy is then irrevocably assigned.
The client is not writing a new check. They are repositioning dollars that were already committed to insurance.
The structure
What the pieces are
| The part | What it is |
|---|---|
| The policy | A single premium whole life policy. No underwriting, no health questions, one page to write. |
| The trust | A master irrevocable trust. Every funeral trust is assigned into it. |
| The trustee | The insurance company, which holds the master trust agreement and administers it. |
| The assignment | Irrevocable. The money can only be paid to the funeral home, or returned to the estate of the insured. |
| The cost | No charge for the trust itself, and no attorney required. |
That restriction is not a limitation. It is the reason the funds are protected, and the reason the trust qualifies the way it does.
The claim
How it pays out
The funeral home is paid for services rendered. Whatever is unused does not disappear.
Notify the carrier
The funeral home contacts the trust carrier to report the owner’s passing.
Submit the claim form
One form, listing the dollar amount for services rendered. No death certificate is required.
Get paid
The funeral home is paid within 24 to 48 hours of submission.
You are not in the middle of this. The funeral home deals with the carrier directly, so nothing stalls waiting on you to chase paperwork.
What it actually is
The name is marketing. The structure is what qualifies.
The term funeral expense trust is used universally across the industry, and it is a marketing name. Technically, the product is burial funded life insurance that has been irrevocably assigned to a trust.
What makes it Medicaid friendly is the components:
- Irrevocable. Once it is written, it cannot be undone.
- Not assignable. It cannot be handed to someone else.
- No cash value. There is nothing to surrender or borrow against.
- Payable to a licensed funeral home. The funds are not payable to beneficiaries.
- The remainder returns to the estate of the insured, where it can be subject to estate recovery like any other estate asset.
Together, those meet the Medicaid guidelines for burial funded life insurance that has been irrevocably assigned to a trust. Agents get tripped up by the name. The structure is what qualifies.
It is not the funeral trust a funeral home sells
A funeral home sells something it also calls a funeral trust. That arrangement is tied to the funeral home that sold it, and the money is committed to their services.
Ours is a life insurance policy, irrevocably assigned to a master trust where the insurance company is the trustee. It can pay any funeral home in the U.S., so a family is not locked into the one that wrote it.
Medicaid
Exempt from spend-down
Because a funeral expense trust is irrevocable, the benefit amount is immediately exempt from Medicaid spend-down for long-term care. It can also be used to protect access to government and disability benefits, SSIs, and special needs trusts.
- Premiums up to state limits and subject to carrier specific limits: National Guardian Life writes up to $15,000 per policy, Unity Financial up to $17,500.
- Policies on immediate family members, and potentially on a spouse.
Growth vs. protection
Yes, there is an internal interest rate
The policy does earn interest on the money inside it. The rate is small, and that is by design. This is not an accumulation product.
By the time a family is considering a funeral trust, the asset has already been grown. The job has changed. Now the job is to protect it, keep it out of the spend-down calculation, and make sure it is there and payable within 24 to 48 hours when it is needed.
What it earns
A small internal rate on the money inside the policy.
What it protects
The full benefit amount, exempt from Medicaid spend-down from the day it is written.
Protecting the asset outweighs growing it.
Questions agents ask
Before you write the first one
Does the client have to choose a funeral home up front?
No. The funds can be paid to any funeral home in the U.S., so the decision can wait.
Is a death certificate required?
No. The funeral home verifies the passing and files the claim. That removes the biggest delay in traditional final expense.
How long does the application take?
One page, about five minutes. No health questions, no underwriting, no exam.
Is every client accepted?
Yes. There are no health questions, so there is nothing to decline.
Is there a cost for the trust itself?
No. Each funeral trust is assigned to a master irrevocable trust where the insurance company serves as trustee, so there is no trust fee and no attorney.
What happens to money that is left over?
Any unused portion not spent on direct funeral services, cemetery services, or a celebration of life is returned to the estate of the insured.
How much can be set aside?
Two limits apply. The state sets one, and it varies. The carrier sets the other: National Guardian Life writes up to $15,000 per policy and Unity Financial up to $17,500. Policies can be written on immediate family members, and potentially on a spouse. Confirm both limits before you write.
Can the client change their mind?
No. The assignment is irrevocable, and that is exactly what makes the money exempt.
Talk to us
Schedule a call or meeting
Scott Moan, LUTCF
Founder / Managing Director