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Paying for a funeral is one of the biggest expenditures that a person will encounter in their lifetime. When planning a funeral, the costs add up quickly, and while many are basic, there are others that people unnecessarily rack on as an emotional reaction to the death. When experiencing a loss, people often tend to overextend themselves financially, in order to achieve a sense of peace and finality. Some even feel that the amount of money that they expend on the funeral is indicative of their feelings for the deceased, sometimes causing them to spend more than they can afford. To alleviate their children and families of these difficult decisions, many have started pre-planning their own funerals. According to the 2007 AARP survey, 23% of people over the age of 50 pre-arranged their funerals, some even paying in advance. Conveniently, irrevocable pre-paid funeral expenses are not included in the asset limitations imposed by Medicaid, making them an excellent choice for spending down assets to qualify for benefits.
Pre-Paid Funeral Contracts
What is a pre-paid funeral contract?
A pre-paid funeral contract is a legally binding agreement between you and the provider of the funeral services, which states that you will pay now for future post-death costs.
What expenses does a pre-paid funeral contract cover?
A pre-paid funeral contract can pay for a number of final expenses, depending on your specific wishes, including:
• Expenses that occur at the funeral home
• Burial expenses
• Death certificate
• Clergy expenses
The contract does not include burial plots, caskets, headstones, etc.
Why pre-pay for a funeral?
Paying for your funeral ahead of time allows you to remove the financial burden from your loved ones following your death. It also allows you to spend down assets to meet Medicaid’s asset limit.
What is the difference between preplanning and prepaying for a funeral?
Many individuals choose to plan their funerals ahead of time to ensure that their final wishes will be met, and that their loved ones will not have to worry about making the difficult decisions. Preplanning, however, does not cover the expenses of the funeral. Prepaying, on the other hand, ensures that the financial aspect is taken care of too.
How do I prepay my funeral?
Start by contacting reputable funeral homes in your area. Look for the ones that are known to make the process easy on the deceased’s family and are accommodating and easy to work with. Then, meet with the funeral director to discuss a price list. Be sure to clarify exactly which expenses are to be covered by the payment, as specifics may vary by facility.
What is the difference between guaranteed and non-guaranteed price contracts?
A guaranteed contract ensures that all expenses listed in the contract are covered at the rate at which you entered into the agreement. Even if market rates have changed, your final expenses will definitely be covered, and no additional payment will be required from your estate. A non-guaranteed contract will cover your expenses up to the amount with which you’ve prepaid. The original amount is considered a deposit to be applied to the final cost of the funeral. If rates have gone up, the additional amount will be billed to your estate.
Can I get my money back if I change my mind?
A revocable contract will allow you to cancel the agreement and get most of your money back. An irrevocable contract, on the other hand, forbids canceling the contract but may allow you to transfer it to another funeral service provider.
How does an irrevocable funeral trust work?
An irrevocable trust fund is established to set aside money to be used only for funeral costs, and cannot be dissolved or canceled for any reason. It can, however, be transferred to a new funeral home if necessary. Any overage in the policy will go to the State following your death. Your next-of-kin can choose to make changes to your funeral arrangements following your death, so it’s important to ensure that your family understands your wishes. You can also draft additional legal documents with an attorney to legally prevent any changes from being made.
How does funeral contract or burial fund creation impact Medicaid eligibility?
Creating a funeral contract or burial fund can allow a senior to be eligible for Medicaid. A prepaid funeral is considered an excludable asset and is a reasonable use of funds for the Medicaid spend-down process. Most states limit the amount that can be placed in a funeral trust to amounts ranging between $5,000-$15,000. The trust must be irrevocable to be Medicaid eligible, in order to ensure that the money cannot be removed and used for other purposes. Medicaid itself does not cover funeral expenses; so setting aside your own money in a trust allows you to cover the many funeral costs. Specific Medicaid allowable funeral expenses vary by state, so make sure to check your specific state’s laws. Prepaid funeral arrangements can also be made for one’s spouse.
What about life insurance? Is that another way to cover final expenses?
Creating a life insurance policy is another common way to ensure that your final expenses are paid for. Ownership of the policy, however, will need to be signed over to the funeral home in order to achieve Medicaid qualification.
Advance planning for funeral expenses is a great way to achieve proper Medicaid spend- down. It’s also an opportunity for comparison shopping that your loved ones may not have access to following your death, and also spares your family from the stress of making those decisions under the pressure of time and strong emotions. Prepaying and pre-planning for your funeral helps your loved ones and ensures that your final wishes are carried out.
To find out more about funeral Medicaid exemptions, give us a call today at 1(855)S.Planning.