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Saturday, October 31, 2015

Avoiding Prepaid Funeral Scams When Medicaid Planning

I recently received correspondence from a company claiming to help with Medicaid eligibility by offering prepaid funeral services. Is this legit?

When it comes to Medicaid planning, the overall goal is to reduce personal assets either by transferring these assets to a trust, gifting to family, or making exempt purchases. Exempt purchases and transactions are those that do not trigger a penalty even during the 5-year look-back period, and include any of the following:

  • Full or partial payment on any legitimate debt (e.g. mortgage, auto loan, etc.)
  • Purchases of an exempt asset (e.g. an exempt home)
  • Preplanned funeral
  • Preplanned burial
  • Annuities
  • Caregiver costs
  • Maintenance of a non-countable asset (e.g. home improvements to an exempt home)

Of these “spend down” options, one of the most notorious areas for scams involves the concept of a prepaid funeral and/or burial service. While there are many trustworthy and reliable outfits available to help planners prearrange these events, planners are cautioned against working with any companies that seem questionable or aggressive. It is vital to work with a prepaid funeral service provider with a strong reputation in the community. If possible, it is best to obtain a personal referral.

Sound Alternatives

Too often, prepaid funeral plans require monthly payments that, in the end, amount to more than the actual cost of the average funeral. In addition, these plans may include costly and wasteful “service” or “account maintenance” fees that create an unnecessary burden on the decedent’s estate when it comes time to prepare for the memorial services.

As an alternative, planners may be able to direct funds into an interest-bearing account for purposes of pre-paying funeral costs and expenses. By designating a beneficiary as payable-on-death, family members can rest assured the process is handled with ease, and preplanners can rest easy, knowing the process is being taken care of in a cost-effective manner.


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