Death is a difficult topic for many to discuss and plan for. Preparing for one’s death through the form of prepaid funeral arrangements can be beneficial. After an individual’s death, their assets are often inaccessible until the estate has been opened, which leaves family members needing to advance the costs of the funeral until the estate has been opened. The prepaid funeral is one way to make sure that your funeral and burial costs are covered. In addition to helping your family after your death, a prepaid funeral contract can be a good way to spend down assets in order to qualify for Medicaid.
A prepaid or pre-need funeral 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, room for the funeral service, casket, vault or grave liner, cremation, transportation, permits, headstones, death certificates, and obituaries, 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.
Annually, the Pennsylvania Department of Human Services (DHS) publishes an updated Burial Cost chart. This chart provides the maximum amount under Pennsylvania’s Medicaid rules that can be used to fund an irrevocable burial reserve, or pre-paid funeral. The benefit of prepayment of funeral costs is that the prepayment or burial reserve is not counted as a resource when determining Medicaid eligibility. In order to be an exempt asset for Medicaid the account must be irrevocable, which means that none of the funds may be withdrawn before the individual’s death. Additionally, the amount in the reserve or the amount used to pre-pay for the funeral cannot exceed the burial limit as set by Pennsylvania 55 Pa. Code § 178.5.
The limits set for the burial reserve change annually based on the average burial costs in each county. It is important to note that the maximum amount is based on burial and not cremation which tends to be less. Each county conducts a survey of local funeral homes within the county to determine the average costs.
In Montgomery County, the burial reserve limit is $18,847 with 25% extra being allowed for extraordinary costs related to the burial, for a total burial reserve limit of $23,558.75 for 2021. For Chester County, the burial reserve limit is significantly more at $24,774.50 with 25% extra being allowed for extraordinary costs related to the burial, for a total burial reserve limit of $30,968.13 for 2021.
Pre-paying for funeral costs or establishing a burial reserve is a great tool to be used when applying for Medicaid. However, before funding a burial reserve or pre-paying for your funeral you should consult with an elder law attorney. In the event that the account is overfunded or not set up properly, it could result in a denial of Medicaid benefits. Additionally, excess funds remaining from the irrevocable burial reserve after the burial expenses are paid become a part of estate and may be subject to an estate recovery claim by DHS to the extent of the Department’s claim for Medicaid.
The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation.