If you’re like most seniors, you realize you may need to rely on Medicaid to pay for nursing home or in-home care. While many people assume Medicaid will cover the cost of such care if it is needed, they don’t realize that not everyone is eligible. You may not consider yourself rich, but the government will closely examine the type and amount of property you own if you apply for Medicaid benefits. If the value of your countable assets is too high, you will be ineligible for Medicaid.
One of the most difficult challenges for seniors is to qualify for Medicaid while still retaining enough assets to pay essential expenses so they will not burden their children, grandchildren, siblings or other family members. For example, you may want to ensure there is enough money in your estate to pay for your funeral services and cremation or burial. However, the cost of a simple funeral and burial can easily total $10,000 or more. If your last wishes include entombment in a mausoleum, burial at sea, or an expensive casket, you can expect to pay even more. If you worked hard to save for retirement, you may be able to afford these items now, but what if you have to spend down your assets to become eligible for Medicaid?
There is a way to ensure you will have a proper funeral and burial while still meeting the asset requirements to qualify for Medicaid. By going through the process of Medicaid planning with a qualified attorney, you can learn what types of assets are considered exempt, for purposes of Medicaid eligibility. By engaging in Medicaid planning, you can ensure that exempt assets are available for your funeral and burial, such as a burial plot, an irrevocable prepaid funeral contract, or life insurance up to a certain cash value. This article explores a variety of options for planning one’s funeral and burial when Medicaid eligibility is a concern.
One of the best books on the subject of asset protection and Medicaid planning is How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets (5th edition). It provides in-depth guidance on which assets are counted and which assets are excluded for purposes of determining eligibility for Medicaid, including how assets such as life insurance, burial funds, burial spaces, and pre-paid funeral contracts are treated. Published in 2011, this book also addresses the changes to Medicaid which occurred as a result of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006.
Burial Funds
A revocable burial fund of up to $1,500 for the Medicaid recipient is exempt if the funds are specifically designated for such purpose. The recipient’s spouse may also have a burial fund of up to $1,500. In some states, the allowable dollar amount is not $1,500, but a different amount as set by the state’s Medicaid program. If burial funds of the recipient and the recipient’s spouse exceed the allowable amount, they may not be exempt assets under Medicaid. In some states, the allowable amount of a burial fund is reduced by certain types of life insurance policies, burial trusts, and funeral contracts. The Medicaid eligibility rules in your state will determine the dollar amount of a revocable burial fund that is exempt.
The burial fund must be in a separate account. It cannot be kept in your savings or checking account. The burial fund may accrue interest and still remain an exempt asset. However, the original amount the burial fund account was opened with cannot exceed $1,500, or the amount allowed by the applicable state Medicaid program.
Failure to Engage in Medicaid Planning
If you know you will need to rely on Medicaid for nursing home care or if it is a possibility, thorough estate planning is essential. With regard to your funeral and burial costs, if you fail to engage in Medicaid planning, your estate may be left without enough money to pay for your funeral and burial. The burden of these expenses will then be left to your surviving spouse, partner, children, grandchildren, siblings or in some cases, distant next of kin. Given today’s average funeral and burial costs, this is a huge burden to leave your relatives, who may be financially unable to pay these expenses. With proper planning before you pursue Medicaid benefits, you can ensure your own assets will be used to pay for your final arrangements and memorial preferences.
Exempt Assets Under Medicaid
For purposes of Medicaid eligibility, certain assets are considered exempt. An exempt asset is one that is not countable as a resource for purposes of determining whether an applicant is eligible for Medicaid. A person may continue to own exempt assets and receive Medicaid coverage for nursing home care. Certain types of assets commonly used for a funeral, cremation or burial are exempt under Medicaid.
Prepaid Funeral Contracts
An irrevocable prepaid funeral contract, up to a certain dollar amount, is exempt from countable assets for purposes of Medicaid eligibility. The allowed amount of the prepaid funeral contract varies by state. If the face value exceeds the amount permitted by Medicaid regulations, or if the prepaid funeral contract is revocable, it will not be treated as an exempt asset.
There are a myriad of ways to structure a prepaid funeral contract. If life insurance is part of the contract, it must be irrevocable for the contract to be treated as an exempt asset. If you have questions about whether you completed the necessary paperwork or forms to make the prepaid funeral contract irrevocable, contact the company that sold you the contract.
Entering into a prepaid funeral contract is a good way to ensure there will be funds available to pay your funeral and burial expenses when Medicaid eligibility is a concern. However, the contract must be structured properly to ensure it will not be treated as a countable asset by Medicaid. Also, be aware there are no refunds under an irrevocable prepaid funeral contract. Before signing the contract, review it carefully. If you change your mind about the types of services you want or where you would like to have your funeral or burial, you may be unable to make such changes. There are some downsides to entering into a prepaid funeral contract. See funeral prepaying for more information. Have your attorney review the contract before signing or making any payments.
Burial Spaces
The applicant and the applicant’s spouse are allowed to own burial spaces for themselves and their immediate family members under Medicaid eligibility rules. A burial space may be a cemetery plot, gravesite, mausoleum, crypt, vault, niche for an urn, or a related type of burial space. Burial spaces are exempt assets for purposes of Medicaid. Items related to the burial space may also be exempt. Consult an estate planning lawyer for details about your state Medicaid laws. See finding an attorney.
Life Insurance
A whole life insurance policy owned by the Medicaid applicant that does not have a cash value in excess of $1,500 is an exempt asset. If the cash value exceeds $1,500, the life insurance is usually a countable resource for Medicaid purposes. Owning significant amounts of life insurance can result in ineligibility for Medicaid. Term life insurance is an exempt asset.
Timing is Everything
Don’t assume you can wait to engage in Medicaid planning until a few weeks or months before you plan to apply or until you need to be admitted to a nursing home. Early review of assets is essential for those who wish to benefit from Medicaid planning. There is a look-back period that applies to the transfer of assets and eligibility for Medicaid.
Note: This article only addresses assets that may be used to pay for funerals, burials, and related final arrangements. Certain other assets are also exempt under Medicaid but are not addressed here. This article is not a comprehensive guide to Medicaid Planning. Eligibility requirements for Medicaid vary by state. The amount or type of assets you are allowed to keep and still qualify for Medicaid may be different than outlined above, depending on your state. Contact your state department of health and a local estate planning lawyer for more specific information. For a list of Medicaid planning guides, see Medicaid Planning Books.
. It provides in-depth guidance on which assets are counted and which assets are excluded for purposes of determining eligibility for Medicaid, including how assets such as life insurance, burial funds, burial spaces, and pre-paid funeral contracts are treated. Published in 2011, this book also addresses the changes to Medicaid which occurred as a result of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006.