Prepaid Funerals and Medicaid

Many of my clients seek to qualify for Medicaid benefits.  Medicaid is a federal and state government health plan for needy individuals.  There are many different programs of Medicaid in any given state.  The program of Medicaid that I work with on behalf of my clients is for Medicaid that pays for institutional level services.

Institutional level services are services such as nursing homes, assisted living residences, and home aides.  Institutional level services, commonly known as long-term care services, can be quite expensive.  A nursing home can cost up to $14,000 a month.  An assisted living residence can cost upwards of $10,000 a month, and a home health aide can cost upwards of $7,500 a month.

Most of my clients never thought they would ever have to qualify for Medicaid.  In fact, they probably never wanted to qualify for Medicaid.  But when you are faced with costs that might last for years at the rate of $14,000 a month, you seek alternative methods of paying those costs.  When it comes to long-term care costs, Medicaid is, by far, the most frequent payor of long-term care services being provided in the United States, paying for over 50% of care that is being provided in nursing homes.

In order to qualify for Medicaid benefits, an individual must have insufficient income to pay for his care, and he must have limited assets, which are called “resources” in Medicaid parlance.  In order to qualify for Medicaid, an applicant must have no more than $2,000 in countable resources.

Countable resources include most every type of asset that has monetary value with the exception of a limited number of excluded resources.  Excluded resources include the home (if the individual is residing in the home), a car, personal goods and household effects, and certain funeral arrangements.

Recently, the state agency that administers New Jersey’s Medicaid program published a notice that clarifies the nature of the funeral arrangement exemption.  A burial space for the applicant, his spouse, and other immediate family members is excluded as long as the burial space is of reasonable value.  (I don’t know what type of burial space is of unreasonable value, but I’ve never encountered a burial space with unreasonable value.)  “Burial space” includes the gravesite, the casket, the urn, the vault, and the fee for opening the grave.

Also excluded are irrevocable prepaid funeral contracts for burial goods and services.  You can contract with a funeral home for the prepayment of your funeral.  If the contract that you enter with the funeral is irrevocable, meaning that you cannot surrender the contract and receive the money you paid towards the funeral back, then the burial contract is an excluded resource.  The burial contract must also name the state of New Jersey as remainder beneficiary for any funds remaining after the payment of the burial goods and services; in other words, if the money isn’t used for the funeral, then the money is paid to the state.

The burial contact cannot include the payment of certain goods and services.  The recent communication from the state makes it clear that you cannot prepay for such items as flowers, transportation for family members, and food for family members (such as the prepayment of a repast—the meal families typically have after the funeral).

Prepaying for a funeral is a typical planning technique when seeking to qualify for Medicaid benefits.  The recent communication from the state makes it clear what goods and services and individual can and cannot include in their prepaid funeral.

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