Benefits of Pre-Need Funeral Contracts
For most people, thinking about their own funeral is less than appealing. You might have a vague notion of whether you want a burial or cremation, and where you want your remains to rest. Not many go the extra step to preplan their funeral or prepay for their funeral and burial or cremation.
When planning ahead, you will find several options, ranging from setting aside funds in a separate bank account, establishing a qualified funeral trust, buying a life insurance policy to pay funeral (and other) costs, and entering into a preneed contract with a funeral home. A preneed funeral contract is an agreement between you and a funeral provider in which payment is made in advance. Preneed contracts are often funded with life insurance.
Because there are so many choices and decisions to make, one benefit of preplanning is knowing your loved ones will not have to worry about funeral arrangements during a time of mourning.
According to a National Funeral Directors Association study, the median cost of a funeral and burial in 2019 was $7,640, $9,135 if a vault is required or desired. This does not include items such as the cemetery plot, monument or marker, or opening and closing of the grave. The median cost of a funeral and cremation was $5,150. Even if you have set aside funds to pay for your funeral, family members might make decisions based on emotion, which often ends up being more expensive. If you have preplanned or prepaid for your funeral, this decision-making burden will be removed, not to mention paying now will avoid rising costs due to inflation.
Without a prepaid funeral, upon your death, your estate is responsible for paying funeral expenses. If your estate does not have available cash, your loved ones may choose to bear the cost, expecting to be reimbursed from your funds. In probate, funeral expenses and costs of last illness are prioritized to be paid before other estate expenses. However, this might not happen quickly or easily. If your heirs or beneficiaries under your Will do not get along, for example, reimbursement will be more difficult and cause further division. If there is not already a probate or heirship proceeding, and loved ones cannot afford to pay the funeral costs upfront, a qualified person can seek an emergency court order. The order directs a person or financial institution holding your funds to pay the funeral home directly. The amount is limited to $5,000.
Another benefit of a preneed funeral contract has to do with Medicaid planning. If you or your spouse are likely to seek Medicaid in order to pay long-term care costs, ownership of certain preneed funeral contracts is not counted against for eligibility purposes. In order to qualify for exclusion as an asset, among other requirements, the contract must be irrevocable.
Even burial spaces and burial space items purchased for your immediate family members are excludable assets for Medicaid eligibility. Immediate family includes your spouse, parents, minor or adult children, siblings, and the spouses of those family members. Items include a burial plot, gravesite, crypt, mausoleum, casket, urn, niche, and can include vaults, headstones, markers or plaques, and arrangements for the opening and closing of the gravesite. These contracts also must be made irrevocable for Medicaid purposes.
If you do not have a preneed funeral contract, funds set aside for your or your spouse’s funeral and burial or cremation are also excluded for Medicaid purposes. However, the maximum amount that is excluded is $1,500 for each spouse.
Online information can be overwhelming. Consider using a funeral negotiator not only to assist in your decision-making but also to help reduce the cost.
If you are unsure whether your funeral contract qualifies for exclusion under Texas Medicaid rules, seek the services of a qualified elder law attorney.
You may visit our website at www.wrightabshire.com. Thank you to Wright Abshire associate attorney Theresa A. Clarke who contributed to the article. Wesley E. Wright and Molly Dear Abshire are attorneys with the firm Wright Abshire, Attorneys, P.C., with offices in Bellaire, the Woodlands, and Carmine. Both are Board Certified by the Texas Board of Legal Specialization in Estate Planning and Probate Law and are certified as Elder Law Attorneys by the National Elder Law Foundation. Nothing contained in this publication should be considered as the rendering of legal advice to any person’s specific case but should be considered general information.