2 Ways to Prepay Your Funeral Expenses and Qualify for Medicaid Faster

iStock_000019669901SmallAssets count when it comes to qualifying for Medicaid as we discussed in a previous post, “How to Qualify for Medicaid Benefits by Planning Now.” However, some assets related to your funeral expenses are excluded, and prepaying them is an acceptable way to spend down your assets to qualify for Medicaid, or Title XIX.

Here’s what the State of Connecticut allows:

Irrevocable Funeral Trust or Contract

You can prepay up to $10,000 for an irrevocable funeral trust, also called an irrevocable funeral contract. This covers basic service charges, funeral services, preparation of remains, vehicles, etc. Keep in mind that this type of contract cannot be canceled or cashed in. It can only be transferred to another licensed funeral home.

Revocable Burial Plot Allowance

This type of contract can be funded in any amount, but is only for specific burial plot items including:

  • Casket or Urn
  • Outer burial container or vault
  • Cemetery expenses such as gravesite, opening and closing
  • Cemetery monument, marker, mausoleum and engraving

This type of contract can be canceled at any time. However, if you are already on Medicaid, the funds must be handed over to the state, or the increase in assets may disqualify you from being eligible for Medicaid until you have spent down again.

Not sure about all this? You’re not alone.

Here are 3 questions that frequently come up regarding funeral contracts:

What happens if my funeral costs more than $10,000?

The average cost of a funeral, depending on what you choose, could easily be higher than $10,000. A good way to pay the difference, if there is one, is to purchase a revocable funeral contract. By doing this, the funeral home will typically allow you to lock in today’s prices for professional services it provides regardless of how long you live. If you cancel the contract, the same rules apply as above – the funds must be handed over to the state, or the increase in assets may disqualify you from being eligible for Medicaid until you have spent down again.

What if my funeral costs less than $10,000?

You can purchase an irrevocable funeral contract for up to $10,000. If the funeral you choose costs less, say if you wish to be cremated, you can fund the contract with the actual cost. If you decide to fund the maximum amount of $10,000, the funeral home can use surplus funds to pay for funeral related expenses – things like a brunch after the service, flowers and clergy honorarium. If there’s still a balance, any remaining funds go to the state if you were on Medicaid.

Can I use life insurance to prepay my funeral expenses?

There are two ways you could do that:

  1. Make the prepaid funeral trust the beneficiary of a life insurance policy. However, this will not lock in today’s prices for professional services and does not help you spend down your assets.
  2. Cash in a life insurance policy you own that has cash value, which is a countable asset from Medicaid’s perspective. This is a good way to spend down, and will lock in today’s prices for professional services rendered by the funeral home.

The Department of Consumer Protection’s brochure Funeral Service Contracts – Facts for Consumers offers detailed guidance about what to look for when prepaying for your funeral.

Making plans for the end of your life is not a topic most people want to think about much less do something about. But there are clear advantages to taking charge.

By prepaying for your funeral, a legitimate way to spend your money down for Medicaid purposes, you may end up qualifying sooner for the care you will need.

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