The Question: Is it true that I can spend down my resources in order to become Medicaid eligible by paying for my funeral in advance?
The Answer: Absolutely. Not only can you prepay all of your funeral expenses without triggering a penalty under the Medicaid guidelines, but there is no limit to how much you may prepay towards the cost of your funeral. Fortunately for you, funeral homes are highly regulated and the statutes that govern the funeral industry in New York are seen by many as very consumer-friendly. When it comes to prepaid funerals, our legislators have eliminated most of the risk that the funds you give a funeral home today for your funeral will not be available when needed.
How it Works: If you decide to prepay for your funeral for purposes of Medicaid eligibility, you must enter into a contract with a funeral home for the products and services you want to purchase from the funeral home and its providers. You may prepay for everything from the flowers to the casket and from the music to the transportation to and from the cemetery. Medicaid does not set a limit on how much you can spend on your funeral so you can plan as elaborate a burial as your finances will allow. However, you should keep in mind that all of the money you give to the funeral home for your funeral must be placed in an irrevocable trust for your benefit. Once the money is in trust, you cannot get it back and it can only be used for your funeral.
When you prepay your funeral expenses, the prices for most items relating your funeral can be guaranteed. You are, therefore, protected against rising prices because the funeral home is obligated to provide the services and products you selected in exchange for the funds in the trust at the time of your death. In addition, interest will accrue on the funds placed in your irrevocable trust. Finally, the trust is portable. That means that the funds in the irrevocable trust will be available for your funeral regardless of which funeral home actually carries out your funeral plans.
In the event the actual cost of your funeral is less than the funds available in the trust, the funeral home is obligated to turn over the excess funds to Suffolk County to cover the cost of burials for the indigent.
While most prepaid funerals are funded in anticipation of applying for Medicaid, anyone can make their own funeral arrangements in advance, with or without prepaying. People who do not have a close relative to arrange for their funeral, or who are concerned about the stress and anxiety arranging a funeral may cause a loved one often find advance planning an attractive option. Even if you chose not to prepay, planning your funeral in advance will insure that your wishes are honored and that your loved ones are not faced with countless decisions about your funeral at a time when they are upset and grieving.
If you engage in advance funeral planning and prepay for your funeral without regard to Medicaid eligibility, the funds you pay to the funeral home need not be put into an irrevocable trust. Those funds will, however, be placed in trust for your benefit. The trust funds earn interest and are fully portable. If your funeral costs less than the funds in the trust at the time of your death, your estate will receive a refund for any overpayment.
For more information on pre-planning and/or prepaying for your funeral, go to the website for the New York State Health Department and search on “prepaid funeral”.
This article first appeared in the June 23, 2011 issue of the Times Beacon Record Newspapers
Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.