To Prepay or Not To Prepay


Attorney Mindy Felinton has been assisting clients in eldercare law and estate planning for more than 20 years. A lot of her work is focused on helping families protect assets and retain Medicaid benefits, she said, and one of the assets a person can keep without penalty is a prepaid funeral plan. Such an account typically holds between $10,000 and $12,000.

When a person enters a nursing home, he or she may keep no more than $2,500 in assets in order to receive Medicaid benefits, said Felinton. If married, the spouse remaining at home can possess a minimum of $23,844 and a maximum of $119,220.

“So using money to buy the funeral allows them to keep their funeral cost dollars,” she explained, as long as the funds are placed in an irrevocable account, “but the other benefit is that the prepaid plans lock in the cost.”

At Levinson’s, about 300 families per year plan and pay for their funerals ahead of time, said Matt Levinson. Steve Levin of Pikesville did so back in 2008 for his father Jacob Levin, who died about six years later.

It’s easier to make the arrangements during a time that is not as emotionally charged, said Levin, comparing that experience to when his mother died years before.

“I was still kind of in a state of shock and emotionally drained” when making her funeral plans, said Levin. With a prepaid plan, “it’s [still] a tough thing to do,” but it’s helpful in the long run.

In a pre-paid arrangement, funeral costs are locked in ahead of time; if not, those exceptions must be noted in writing, said David Weber, president of the Maryland State Funeral Directors Association, but “our costs are rising in the 31/2 to 41/2 percent range each year.”

Two types of accounts in the state of Maryland both accrue interest that is retained by a funeral home to defer costs incurred by inflation. One is a federally insured trust in the name of a beneficiary; the funeral home, listed as the trustee, receives the interest.

If a funeral home is large enough and it has enough prepaid funerals, said Weber, it can execute a master trust to combine possibly hundreds of thousands of dollars that could ultimately earn higher interest rates.

The other option is an insurance-funded account, which also identifies payment upon death to a funeral home as trustee. Because it’s an insurance policy, said Weber, it might allow payment over three to five years, making it a more flexible financial option for the buyer.

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