Funeral planning is never on the top of anyone’s to-do list; however, many seniors are unaware that prepaying for their funeral arrangements is one of the expenses that Medicaid allows as part of spend-down. The Department of Human Services recognizes that Medicaid asset requirements ($2,000 in many states) don’t leave beneficiaries with the available funds to have their end-of-life wishes honored without becoming a burden to others.
In this guide to prepaid funeral plans for Medicaid, Senior Planning Services shares the detailed criteria that need to be met in order to set up a Medicaid approved prepaid funeral contract.
Qualify for Medicaid with a Prepaid Funeral
To be eligible for Medicaid coverage, seniors must meet a state-specific asset limit. Individuals with assets above the qualifying criteria for Medicaid can utilize spend-down methods that are approved by Medicaid in order to qualify for coverage.
One way to reduce assets for Medicaid is to spend-down for funeral expenses. The prepaid funeral plan is exempt from the countable assets according to Medicaid, as long as it has been set up properly.
What Is the Medicaid Exclusion for Funeral Plans?
Medicaid funeral plan exclusions vary by state. While federal rules allow up to $1,500 in burial funds and exempt irrevocable funeral trusts, states may increase, restrict, or impose additional requirements on these amounts.
It is important to have your prepaid funeral contract set up by a funeral director who is well-versed in these laws since eligibility criteria and Medicaid asset allowances are constantly changing. It’s worth noting that interest earned on your prepaid funeral account is not counted as an asset when establishing eligibility.
Irrevocable Funeral Trusts
An Irrevocable Funeral Trust (IFT) is a legal arrangement in which an individual sets aside funds specifically to pay for their funeral and burial expenses. As the name suggests, once the trust is established and funded, it cannot be changed or revoked by the person who created it.
Most states require that the prepaid funeral contract be non-returnable, or irrevocable. In this way, Medicaid can ensure that the funds will only be used for their intended purpose.
What Does Medicaid Allow for Funeral Expenses?
Some states also have rules on the kind of expenses that can be included. Each state has slightly different rules, but typically allowed prepaid funeral expenses for Medicaid can include:
- Funeral Services: funeral director fees, embalming and body preparation, transportation of the deceased, religious services
- Burial or Cremation Costs: casket or urn, burial plot, cremation services
- Grave-Related Items: opening and closing of the grave, headstone, marker, monument
- Merchandise and Other Items: flowers, memorial book, clothing for the deceased
This is not an exhaustive list, and it is a good idea to check with a Medicaid planning expert for up-to-date guidelines.
Other Medicaid Prepaid Funeral Rules
Other laws apply to the technical details of the contract, such as who is listed as the owner and beneficiary. This is set up in order to assure that any remaining funds left over after all funeral expenses are paid for will revert back to Medicaid.
It is important to note that there are ways to have a life insurance policy set up to pay for the funeral. When you apply for Medicaid, you are required to surrender life insurance policies that exceed the asset limit for eligibility (certain policies may be exempt, read our article about life insurance policies and Medicaid for more information). However, in some circumstances, a policy can be signed over to a funeral home so that the death benefit (which is greater than the surrender value) will be paid out directly to the funeral home before the funeral. Any remaining funds will be returned to the state in which Medicaid was received.
Criteria for Prepaid Funeral Plans for Medicaid by State
Here is a breakdown of the criteria required for a Medicaid-approved prepaid funeral in the states of NY, NJ, PA, CT, MA and RI.
This information is not intended as legal advice and should be used as a handy reference.
New York and New Jersey
In NJ and NY, Medicaid requires that all prepaid funeral contracts be irrevocable. A list of goods and services detailing the items pre-purchased must be submitted with the application. There is no maximum spending amount; however, there are criteria for allowable purchases, and the contract must list the respective state as the beneficiary.
Pennsylvania
The laws involving prepaid funerals in PA are more detailed. The contract must be irrevocable; however, a list of goods and services is not needed. The maximum expense allowance changes each year and is different in each county. The state of PA must also be listed as the beneficiary in the contract.
Connecticut
In CT as well, a Medicaid prepaid funeral contract must be irrevocable. The maximum expense allowance is $10,000; however, additional funds can be put aside in a revocable burial trust account (for specific burial space expenses).
Rhode Island and Massachusetts
In both RI and MA, a prepaid funeral contract must be irrevocable. There is no maximum expense allowance. However, the contract total needs to match the list of goods and services. You can also open a burial account which is a checking account with an opening balance of $1,500. This is exempt from your asset limit and can be used towards burial expenses.
Benefits of a Prepaid Funeral Plan with Medicaid
There are many advantages to setting up a prepaid funeral contract before applying for Medicaid, including:
- Protected Eligibility: A properly structured Medicaid prepaid funeral plan is considered an exempt asset, so it won’t count against your Medicaid eligibility.
- Approved Medicaid Spend Down: Prepaying funeral expenses is a legitimate way to reduce countable assets during the Medicaid spend-down process.
- Coverage For Funeral Expenses: Medicaid allows a wide range of funeral-related expenses (see above for more information) if they’re included in the prepaid plan.
- Avoiding Family Burden: If you take care of your funeral costs ahead of time, it eases the emotional and financial burden on your loved ones.
- Providing Peace of Mind: Knowing that your final arrangements are paid for and won’t affect Medicaid eligibility can bring comfort during the planning process.
Can Medicaid Take a Prepaid Funeral Plan?
No, Medicaid cannot take a prepaid funeral plan as long as it has been properly structured according to the criteria detailed above. It needs to be irrevocable, earmarked for permitted expenses only (funeral, burial, cremation, and related costs – see list above), and comply with the Medicaid rules in your state.
Set Up Prepaid Funeral Plans for Medicaid
Setting up a prepaid funeral contract ensures that you have enough assets available to have a respectable send-off. It can also help you qualify for Medicaid coverage, as an acceptable spend-down method. However, it is imperative that it is structured correctly. Senior Planning Services, experts at simplifying the Medicaid process can guide you on setting up a Medicaid prepaid funeral if it is in your best financial interest. Contact us to find out how we can assist you with all the details involved in applying during this overwhelming time in your life. leaving you with peace of mind and your approval in hand.
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