Spending Down Assets for Medicaid: A Prepaid Funeral Contract

In order to be eligible for Medicaid, there are certain asset limits that need to be followed. Some of those include $2,000 in cash ($3,000 for a couple), a home valued at $500,000 or less, one automobile of any market value, funeral and burial funds, any real or personal property deemed essential for self-support, and a life insurance policy not exceeding $1,500. If an applicant wishes to receive Medicaid funding but has excessive assets, they will need to either spend down those assets or use the excessive amount to pay for long-term care needs until the surplus amount is drained.

Many applicants choose to spend down because it is less devastating to them and their children who may need that money or wish to keep those assets. Without worrying about the Medicaid ineligibility period, one way to spend down assets is through a prepaid funeral contract.

A prepaid funeral contract allows an applicant to purchase funeral goods and services before they die. This contract will be entered into between a funeral home or cemetery, and the contract will ensure that the burial and funeral wishes of the applicant will be respected. The contract may include payments for, but is not limited to:

  • Casket, urn, mausoleum, vault, headstone burial containers and headstone engraving
  • Cost of opening and closing of the gravesite
  • Cremation and urn
  • Perpetual care contract for the gravesite
  • Embalming or cosmetology and burial clothes
  • Funeral transportation (hearse, limousine, out of town shipping)
  • Use of funeral home facilities for services, visitation, or wake
  • Clergy services, death notices, and flowers

Food, and lodging for out of town family, friends or guests will not be exempt. Burial plot costs also are not included in a prepaid funeral contract. If you wish to plan for burial plot costs, these will also be excluded from your Medicaid asset amount but must be purchased in addition to the prepaid funeral contract.

While considering the possibility of death is an avoided thought, a prepaid funeral contract has many benefits, including spending down for Medicaid eligibility. It also allows an applicant to lock in a funeral rate at today’s going rate instead of a rate 20 years from now. Inflation is real, a funeral that may cost $7,000 in 2017 will likely cost $9,000 in 2027. Additionally, planning for your own funeral will save your family from having to make arrangements after you die. This will be a difficult and a time-consuming process. Pre-planning will allow you to take control of your own funeral and avoid having your loved ones overspend on something you would not have wanted.

It is important that when you enter into the prepaid funeral contract if you wish to use this as a way to spend down assets for Medicaid eligibility, that you sign an irrevocable contract. This means, that you will be unable to change the terms of the contract or cancel the contract once it is signed. Moreover, an irrevocable prepaid funeral contract will set aside money to be used for funeral costs. For this reason, it is important that when you enter a contract that you know it is fair. Don’t rush into the decision, shop around and compare prices. Consider entering into a contract with an established and reputable company, and do not hesitate to ask any questions you may have.

If you decide to enter into a contract, be sure that you make a copy of the contract and give it to several people. You may give it to a trusted relative, friend, lawyer or even doctor. This way, if for some reason the original cannot be found, someone knows of the existence of your already paid for the plan. Also, if you move to a long-term care facility or a hospital, give the facility a copy of the contract as well.

A prepaid funeral contract may also be made on behalf of the immediate family. An applicant for Medicaid may spend down by entering into a prepaid funeral contract from themselves, their parents, their spouses, their children, or their brothers and sisters. For example, Dennis is applying for Medicaid but has excessive assets. He may decide to pre-pay for funeral costs for his brother, instead of himself. While you may choose to pre-pay for funeral costs for an immediate family member, you are unable to have more than one prepaid funeral contract. Additionally, there is no limit on the amount of money used to pre-pay for funeral costs, the amount must simply be reasonable.

When planning for Medicaid coverage for your long-term healthcare, it is important to understand the many methods you may use to spend down assets. The Medicaid application and eligibility professionals at P&P Medicaid Consulting, Inc. assist Nassau County, Suffolk County, and Queens residents in preparing applications for Medicaid while taking advantage of programs and planning options that will protect their income and assets. For more information or to schedule a consultation, call our Long Island, New York Medicaid consulting office at (516) 541-4770 or fill out our contact form.

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