Senior citizens and individuals in late middle-age stand to benefit greatly from making prepaid funeral arrangements. In addition to alleviating any potential financial burden the cost of a funeral could impose on children, spouses, or other family members, prepaying for a funeral also offers economic advantages for those receiving, or interested in receiving, Medicaid. Here's a short guide to how Medicaid and prepaid funerals can work together to your advantage.  

How Prepaid Funerals Affect Medicaid

Medicaid Eligibility 

In order to be eligible to receive Medicaid, individuals must have below a certain amount of money or assets to their name. This number varies from state to state, but the basic rule — a total asset limit on those who receive Medicaid — remains the same nationwide. 

Spenddown Process

Older adults and senior citizens who want to become eligible for Medicaid but currently have assets exceeding the Medicaid limit can engage in something called the spenddown process. This entails spending a certain amount of their money in order to lower their assets to a number that activates Medicaid eligibility. Prepaying for a funeral is one way to spenddown one's assets to become eligible for Medicaid. In order for the money that is set aside for a funeral to be subtracted from a person's total assets, it must be placed in an irrevocable trust or Irrevocable Insurance Contract. 

Irrevocable Trust 

In most states a funeral home is not allowed to accept the money directly so they have options of placing money in a Irrevocable Trust or Insurance policy.  With a Irrevocable Trust the funeral home is allowed to only place a portion of the total funeral in the trust fund and then the trust gains money for future use. The setback I see as for a family member is that 100% of the families money isn’t gaining interest to cover future costs.  If the funeral home goes out of business or if the family wants to change there won’t be enough money in the contract to cover the funeral and the family may have to pay the difference.

 

Irrevocable Funeral Insurance 

When a family wants to pay for their funeral one option is to place the money in a irrevocable insurance contract.  The funeral home places 100% of the money into an insurance policy.  The money grows from day one and usually based on the age has a little more value on day one than what you pay.   There are many benefits:

1. It is portable and any funeral home can apply for the benefits. 
2. It gains money on 100% from day one (which makes it more portable.)  

Disadvantages: some funeral homes have sales staff and to pay them they pay commissions.  The funeral home will take less growth to pay their staff.  That means the money available in the end will be less for the family.  Make sure to ask the funeral home roughly how much growth the policy is gaining each year.

Insurance Assignments

Some insurance companies allow a family to assign an insurance policy irrevocably to the funeral home. For other companies the funeral home has to become the owner and beneficiary (if they don’t allow irrevocable assignments.)  Key items to remember:

1. The family is still responsible for payments and if the funeral home is listed as the beneficiary then any left over money will have to go back to the Estate of unless it is written down on the contract to be placed in an irrevocable policy for spouse, children, or children’s spouses for casket, vault, cemetery or marker costs.
2. Some insurance policies won’t keep up with inflation because they don’t gain interest.  So they may cover the funeral costs now but the funeral home won’t guarantee the costs in the future because there isn’t growth with the policy.

Funeral planning is a wonderful benefit for families.  Knowing a little more about all of the options is why we are here to answer your questions.  

Jolene Winter has been a licensed insurance agent and funeral director since 1998 and has dealt with many of the changes with Medicaid over the years.  She has also managed one of the largest funeral homes preplanning department in Ohio. She now is the owner and funeral director at Brater Winter Funeral Home and is able to answer any questions you might have regarding funeral options regarding medicaid.

 

Residents of the greater Cincinnati area looking for thoughtful, compassionate funeral arrangements can turn to the team at Brater-Winter Funeral Home. The funeral director and staff at Brater-Winter Funeral Home can put together detailed and personalized memorial and funeral services, and they work with families on funeral preplanning. Visit the funeral home's website to consult their funeral arrangement resources, or call directly at (513) 941-1940.