Medicaid is a vital program for individuals who need long-term care but have limited financial resources. However, the eligibility requirements can be strict, requiring applicants to spend down their assets to qualify. One of the ways individuals can protect some of their assets while still meeting Medicaid's financial requirements is by setting aside funds for funeral and burial expenses.
Proper planning can ensure that you qualify for Medicaid without depleting all of your savings, allowing you to cover funeral costs in a legally acceptable manner. Contact us by either using the online form or calling us directly at 414-253-8500 for legal assistance in Medicaid planning.
Understanding Medicaid's Asset Limits
To qualify for Medicaid, an applicant must meet strict income and asset limits. The exact thresholds vary by state, but in general:
- Medicaid applicants are usually allowed to keep only a limited amount of countable assets (often around $2,000 for an individual).
- Some assets are considered non-countable, meaning they do not affect eligibility.
- Certain funeral and burial arrangements may be classified as exempt assets if structured properly.
By leveraging Medicaid-compliant funeral plans, you can set aside money for end-of-life expenses without jeopardizing your eligibility for benefits.
Medicaid-Exempt Funeral and Burial Funds
Medicaid allows applicants to set aside funds for funeral expenses in several ways, provided they follow state-specific rules. Here are the most common options:
1. Irrevocable Funeral Trusts (IFTs)
An Irrevocable Funeral Trust (IFT) is one of the most effective ways to protect funds for burial expenses while still qualifying for Medicaid. This type of trust allows an individual to prepay for funeral expenses while shielding the funds from Medicaid's asset count.
- The trust must be irrevocable, meaning it cannot be canceled or changed once established.
- The funds can only be used for funeral-related costs, such as burial plots, caskets, cremation services, and memorial services.
- Medicaid allows a certain maximum amount (often between $10,000-$15,000, depending on the state) to be placed in an IFT.
2. Prepaid Funeral Plans
A prepaid funeral plan through a funeral home is another option. This plan typically involves paying in advance for specific services. To be Medicaid-compliant, the plan must meet the following requirements:
- The contract must be irrevocable (cannot be canceled or refunded).
- The funds must be used exclusively for funeral and burial expenses.
- The agreement should be structured to cover allowable expenses, such as embalming, cremation, or cemetery fees.
3. Burial Funds Exclusion
Medicaid permits applicants to set aside a small amount of money specifically designated for burial expenses. This is known as the burial funds exclusion and has the following characteristics:
- This exemption applies to both the applicant and their spouse.
- The funds must be clearly designated for burial purposes in financial records.
4. Burial Space Exemption
In addition to prepaid funeral plans and trusts, Medicaid also allows for certain burial-related items to be exempt assets. These may include:
- Burial plots (for the applicant and immediate family members).
- Headstones, grave markers, and urns.
- Caskets, vaults, and burial containers.
Unlike some other funeral funds, there is no limit on the value of exempt burial spaces, as long as they are intended for personal use.
Strategies to Protect Funeral Funds While Qualifying for Medicaid
When planning for Medicaid eligibility, it's crucial to structure funeral and burial funds correctly to ensure they remain exempt from Medicaid's asset calculation. Below are key strategies to consider:
1. Establish an Irrevocable Funeral Trust (IFT) Early
Waiting until the last minute to set up an Irrevocable Funeral Trust can be risky. Establishing one early ensures that the funds are protected well before Medicaid's look-back period is triggered. Most states do not count IFTs toward Medicaid asset limits, making them one of the safest ways to preserve burial funds.
2. Review Medicaid's Burial Fund Exemptions in Your State
While Medicaid allows up to $1,500 per person to be set aside for burial expenses, this exemption varies by state. Some states may offer additional allowances or impose stricter regulations. Consulting with an attorney can help ensure compliance with local Medicaid rules.
3. Use Burial Space Exemptions to Your Advantage
Because Medicaid places no limit on the value of exempt burial spaces, purchasing a burial plot, headstone, or other pre-need burial items is a practical way to set aside money while maintaining Medicaid eligibility. These items are considered non-countable assets, meaning they won't interfere with qualification.
4. Prepay for Funeral Services with a Medicaid-Compliant Contract
Prepaid funeral contracts must be irrevocable to qualify as exempt assets. When selecting a funeral home, ensure that the contract is structured correctly so the funds are fully protected. Be sure to:
- Choose a reputable funeral provider.
- Verify that all prepaid services are eligible for Medicaid exemption.
- Keep proper documentation to prove that funds are allocated for burial expenses.
5. Avoid Overfunding Funeral Trusts or Burial Accounts
Although Medicaid allows for irrevocable funeral trusts, overfunding them beyond the exempt limit may cause issues. If too much money is allocated, the excess amount may be counted as an asset, potentially disqualifying the applicant from Medicaid benefits.
Common Mistakes to Avoid
Many Medicaid applicants make errors when attempting to protect funeral funds. Here are some common mistakes and how to avoid them:
❌ Assuming All Funeral Arrangements Are Medicaid-Exempt
Not all funeral arrangements qualify for Medicaid exemptions. For example, revocable funeral trusts or prepaid plans that allow refunds may be counted as assets.
❌ Failing to Properly Designate Burial Funds
Simply setting aside money in a bank account for funeral expenses does not automatically make those funds exempt. To qualify, the account must be clearly labeled for burial purposes and meet Medicaid guidelines.
❌ Making Last-Minute Changes That Trigger the Look-Back Period
Medicaid enforces a five-year look-back period on asset transfers. If assets are moved improperly within this period, it could result in penalties, delaying Medicaid eligibility. Proper planning ensures that funeral funds are structured before applying for Medicaid.
How an Attorney Can Help with Medicaid Planning
Medicaid eligibility and funeral fund exemptions can be complex. Working with an attorney can help you:
- Ensure compliance with Medicaid asset limits.
- Structure funeral funds properly to avoid disqualification.
- Protect additional assets through legal Medicaid planning strategies.
- Navigate the look-back period to prevent penalties.
If you or a loved one needs assistance with Medicaid planning, contact Heritage Law Office today. Call us at 414-253-8500 or fill out our online form to schedule a consultation.
Frequently Asked Questions (FAQs)
1. Can I set aside money for funeral expenses without affecting Medicaid eligibility?
Yes, Medicaid allows for certain funeral and burial funds to be exempt from asset calculations. Options include Irrevocable Funeral Trusts (IFTs), prepaid funeral plans, burial funds exclusions, and burial space exemptions. Proper structuring ensures these funds do not count toward Medicaid's asset limits.
2. How much money can I put into an Irrevocable Funeral Trust for Medicaid purposes?
The amount you can place in an Irrevocable Funeral Trust varies by state, but it typically ranges between $10,000 and $15,000. This trust must be irrevocable, meaning you cannot withdraw or modify the funds once they are set aside.
3. What happens if my funeral trust is revocable?
A revocable funeral trust is considered a countable asset by Medicaid and may disqualify you from benefits. To ensure exemption, the trust must be irrevocable, meaning it cannot be changed or refunded once funded.
4. Do I need to spend down all my assets before applying for Medicaid?
Not necessarily. Medicaid allows for certain exempt assets, including burial plots, irrevocable funeral trusts, and specific burial funds. Proper Medicaid planning can help protect your assets while ensuring eligibility.
5. How can an attorney help with Medicaid funeral fund planning?
An attorney can help structure funeral arrangements legally, ensure compliance with Medicaid rules, and protect additional assets. They can also guide you in setting up irrevocable funeral trusts and other Medicaid-exempt funeral plans.