Funeral Expenses and Medicaid – Part 2

Funeral Expenses and Medicaid (Part 2)

This week’s post details the more common option when it comes to setting aside funds for a funeral before spending down towards Medicaid eligibility.  Last week I explained that $1500 can be set aside for burial as long as it is specifically designated and not commingled with other funds.  This can be dangerous if close attention is not paid to these requirements but the $1500 limit is also less than what most people spend on a funeral.

A more appealing option is an irrevocable prepaid burial contract. This is an agreement in which the purchaser pays for a funeral in advance that the seller agrees to provide. The contract must be irrevocable – meaning it can’t be cancelled and the funds returned to the buyer.  Medicaid permits a funeral to be paid in this way and there is no dollar limit, however, the purchaser must make the purchases at the time the contract is entered into.  In other words, you can’t put a lump sum into the contract as part of a Medicaid spend down and decide later how to spend it.

Because of the flexibility in spending for a funeral and the requirement to spend down to less than $2000 in assets in the month directly preceding the month of requested Medicaid eligibility, a prepaid funeral contract is the best way to spend down remaining assets.  We have family members meet with the funeral home they intend to use and make the funeral choices in the month just before financial eligibility.  The funeral home draws up a contract and payment is made – but not directly to the home.  Most funeral homes use a fund operated by the New Jersey State Funeral Directors Association, known as New Jersey Prepaid Funeral Trust Fund or “NJ Choices”.  The check is paid to NJ Choices.

Interest is earned on the money which is deposited into an account in the Medicaid applicant’s name.  This will usually cover the increase in cost of services due to inflation between the time of the purchase and the time the funeral services are provided, which could be several years.  Any money remaining in the account must be turned over to the State of New Jersey as part of estate recovery after the Medicaid recipient’s death.

The funeral is the only expense that Medicaid rules permit to be prepaid.  Provided these rules are followed, money set aside for the funeral will not count as an asset towards the $2000 asset limit and will not cause a Medicaid penalty for transfer of assets for less than fair value.