If you need Medicaid to pay for the cost of you or a loved one entering a nursing home or long-term care facility, you must meet certain financial requirements. To qualify for assistance, you must decrease total assets to meet the allowable limit set by Medicaid. To reach this number, many people have to “spend down” their total assets so they qualify. 
Many state Medicaid programs exempt certain assets from that number. Because these exemptions aren’t considered as part of the allowable limit, they can help you spend down so you qualify for Medicaid benefits more quickly. One exemption Medicaid recognizes is the cost of funeral and burial plans.
However, since Medicaid qualification rules and guidelines can be confusing, it’s important to hire a knowledgeable New York estate planning attorney like the professionals at Landskind & Ricaforte Law Group P.C. to guide you on how to meet eligibility requirements.
Funeral Expenses, Burial Costs, and Medicaid: What You Should Know
To be eligible for Medicaid, you’re limited to less than $2,000 in cash and a certain total amount in assets. However, this amount doesn’t include money you set aside for burial plans for yourself or a loved one. If you’ve pre-purchased a burial plot for your loved one or pre-planned the funeral or memorial service, the entire amount is excluded as an asset: Medicaid doesn’t recognize the amount that’s been appropriated for the funeral when determining your eligibility.
How to Set Aside Money for a Funeral if You Need Medicaid
If you want to spend down your assets to establish Medicaid eligibility, you can do this in a couple of different ways.
Create a Bank Account
If you’re planning for a stay in a long-term care facility and need Medicaid assistance, one way you can spend down your assets is by creating a bank account specifically for the costs of a funeral and burial, up to $1,500, as of 2023. Having this money set aside is not only helpful for addressing the high cost of dying, it’s also money that won’t be counted as part of assets when determining your loved one’s Medicaid eligibility.
Keep in mind that in New York, a traditional funeral may cost over $8,000. If you include cemetery fees, the expense is closer to $10,000.
Sign an Irrevocable Contract With a Funeral Home
If you purchase an irrevocable funeral trust, you’re paying in advance for an expense you’ll eventually need in the future. If you pay for a funeral now using a trust, that trust won’t be counted as an asset by Medicaid, and thus help you qualify for benefits. Additionally, establishing the trust doesn’t violate the look-back rule.
When you purchase this trust, it can be funded to the necessary amount for funeral and burial plans, based on your review of the general items and costs with the funeral director. Once you purchase the trust, the trust funds are considered “excludable assets” and aren’t counted toward Medicaid eligibility. However, you also can’t cash in the trust or cancel it.
It’s also important to know that the funds you place in the irrevocable trust can’t be refunded to the person who purchased it. For example, if you placed $10,000 in the trust, and the funeral cost only $5,000, the remaining funds must be sent to the county from which the Medicaid benefits were received.
Know the Limitations of an Irrevocable Funeral Trust
When you set up an irrevocable funeral trust to spend down your assets for Medicaid eligibility, here are two key points to remember.
Money in the Trust Isn’t in Your Control
This isn’t necessarily a disadvantage, but make sure you can afford to put that money away and not have it present a hardship. Because funerals are expensive, setting aside thousands of dollars may not be easy to do, especially if you need that money for current expenses. It’s important to weigh the advantages of spending down your assets for Medicaid eligibility against the need for that money now.
The Funeral Home May Present Risks
The business from which you choose to purchase this type of trust may not be reputable or may have reliability issues. If the funeral home goes out of business, you could lose the money you’ve funded the trust with. However, these businesses must inform each client who has pre-funded a funeral and advise them how they can transfer their arrangements to another funeral home.
But if this doesn’t happen, or you have trouble with a funeral home going out of business, the New York State Bureau of Funeral Directing may be able to help you.