Using a prepaid funeral contract to spend down assets for Medicaid

No one wants to think about his or her death, but a little preparation in the form of a prepaid funeral contract can be useful. In addition to helping your family after your passing, a prepaid funeral contract can be a good way to spend down assets in order to qualify for Medicaid.

A prepaid or pre-need contract allows you to purchase funeral goods and services before you die. The contract can be entered into with a funeral home or cemetery. Prepaid funeral contracts can include payments for embalming and restoration; a room for the funeral service; a casket, vault or grave liner; cremation; transportation; permits; a headstone; a death certificate; and an obituary, among other things.

One benefit of a prepaid funeral contract is that you are paying now for a service that may increase in price — possibly saving your family money. You are also saving your family from having to make arrangements after you die, which can be difficult and time-consuming.

Another benefit is that it can be a way to spend down your assets. Medicaid applicants must spend down their available assets until they reach the qualifying level (usually around $2,000, depending on the state). By purchasing a prepaid funeral contract, you can turn available assets into an exempt asset that won’t affect your eligibility.

In order for a prepaid funeral contract to be exempt from Medicaid’s asset rules, the contract must be irrevocable. That means you can’t change it or cancel it once it is signed.

Before purchasing a contract, you should shop around and compare prices to make sure it is the right one for you. Buyers need to be careful that they are buying from a reputable company and need to ask for a price list to make sure they are not overpaying.

For information from the Federal Trade Commission on shopping for funeral services, see: https://www.consumer.ftc.gov/articles/pdf-0056-funerals.pdf