Pre-Paid Funerals - Buyer Beware?

Over the weekend the Wall Street Journal ran When Prepaid Funeral Plans Are Wealth Killers subtitled "Long Pitched to People of Lesser Means, the Controversial Deals Are Going Upmarket—and Now May Carry Bigger Risks".

Prepaid funerals at the heart are just what they say - you pay now for your funeral upon your death. Elder Law attorneys commonly advise clients who have a loved one in a nursing home and are spending down all their assets to consider purchasing a prepaid funeral.  The expense of a funeral will exist for the family whether their loved one has assets or not - such as in the case of a person who has needed spend down all their assets to qualify for Medicaid to pay for their long term care needs. The purchase of an irrevocable pre-paid funeral is a permissible spend-down before applying for Medicaid.  For many, it is a sensible choice to prepay the $10,000 a funeral averages than to pay another month privately to the nursing home - it is not as if a person who has qualified for Medicaid will have an estate with assets to pay the funeral costs.

A key point is that the payment must be made to in irrevocable funeral trust in New Jersey so that the amount of the prepaid funeral is not "countable" and thus must be liquidated and spent down before Medicaid can be qualified for.  Compare this to a "funeral insurance" life insurance policy, which is a countable asset for Medicaid purposes, and thus potentially must be liquidated and spent-down before a person qualifies for Medicaid.

The article takes issue with situations of potentially unscrupulous sales of pre-paid funerals, whether into trusts where the assets weren't there at the end, or the family didn't get the services they thought they paid for, or they ended up paying more in insurance premiums than the value of the policies.  It notes that " In November, New Jersey started requiring cemeteries to deposit all of the prepayments they receive for burial services into a trust fund for safekeeping."

Notwithstanding that a person always needs to be aware of the "small print" on any large purchase, prepaid funeral will remain in the Elder Law attorneys arsenal, and are a good solution for families who find themselves in a position of potentially having no estate to pay funeral expenses.