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May 4, 2006
Considerations in Pre-Paying Your Funeral
Pre-paid funerals are not for everyone. Some people think that buying a pre-paid funeral is the kiss of death. As soon as they buy it they think death is not far away. Others like to plan out their entire funeral down to selecting what flowers will be at their wake. This article will tell you when you should absolutely purchase a pre-paid funeral and what your options are.
For seniors facing nursing home placement, prepayment of their funeral is imperative. Purchasing a prepaid funeral will ensure that money will have been put aside for your funeral. MassHealth (Medicaid) will only pay for nursing home expenses once your assets are below $2,000 (for a single person) and will allow you to spend down your assets, without any penalty, for pre-paying your funeral.
MassHealth allows 4 options for prepaying your funeral:
1. Cemetery plots may be purchased for the nursing home resident, spouse and any immediate family members.
2. A burial account may be established to pay for any uncovered expenses related to the funeral. This burial account is a bank account that you can fund with as much as $1,500 for the husband and wife, each.
3. Buying a single premium life insurance policy to pay funeral expenses is another way to fund your funeral. The cash surrender value of your life insurance policy is counted as an asset in determining whether you are over the $2,000 asset limit. Assigning the policies to a funeral home makes the cash surrender value non-countable.
4. Purchasing a prepaid funeral contract with a funeral home or funding an irrevocable trust designated for funeral and burial expenses are acceptable methods to spend down your assets.
For individuals who have established a relationship with a particular funeral home, the irrevocable burial contract may be an attractive option. Pre-paying locks the cost of the funeral against inflationary price increases. To qualify for MassHealth (Medicaid) purposes the contract must be irrevocable and provide that the owner have no access to the principal or interest earned by the deposit. The funeral home gets to keep the interest earned. This offsets the fact that they may not increase their price.
For those who do not have an established relationship with a particular funeral home, they may wish to establish an irrevocable trust to pay for their funeral expenses. Under this option the individual would establish a trust and fund it with an amount of money that will be sufficient to pay for the funeral expenses upon death. In order to qualify for MassHealth purposes, the trust must be irrevocable and provide that it may only be used for funeral expenses and that the beneficiary not have any access to the principal or accrued interest.
A question that frequently comes up is, “How much money should I set aside for my funeral?” I usually answer with my standard answer of, “It depends.” Funerals that consist of a cremation and no ceremony can cost a few hundred dollars, while a full blown funeral can cost as much as $12,000. It’s a personal decision.
From a MassHealth perspective there are certain limits on the amount that can be set aside for funeral expenses. Burial accounts, a separate bank account to pay for expenses not covered by your prepaid funeral, may not be funded with more than $1,500. For the funeral contract or trust option, there is no cap on the amount of money that you want to spend on your funeral.
Should you prepay your funeral? If you don’t have any close family members living nearby and want to be sure that your funeral will be conducted as you wish, it’s probably a good idea to make the plans yourself. For those with limited funds or family nearby that would be willing to make the decisions, it’s all right to wait. Individuals in a nursing home should definitely prepay their funeral before they have paid all their money to a nursing home.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org