Ways to Fund an SSI/Medicaid Funeral
If you are trying to make funeral prearrangements for a person seeking to qualify for SSI/Medicaid, you will need very specific funding sources in order to comply with Medicaid rules.
There are three methods that can be used to pay for irrevocable prearranged funerals.
Trust. In order for your trust account to comply with regulations for Medicaid eligibility, it must be irrevocable. This means that the money placed in the trust is non-refundable and any assets left in the account after the funeral costs are deducted will be forwarded to the State of New Jersey as part of asset recovery. The trust is set up in the name of the intended funeral recipient.
When the prearrangements are made, your funeral director can assist you with setting up a trust account. By law, funeral directors must deposit trust funds within 30 days. Monies in the trust—principal and interest—accrue to the benefit of the intended funeral recipient.
Most New Jersey funeral directors use the New Jersey Prepaid Funeral Trust Fund, offered through the New Jersey State Funeral Directors Association.
Existing life insurance policy. In order to use an existing insurance policy for an SII/Medicaid funeral arrangement, the funeral home should be named the policy’s owner and the State of New Jersey the beneficiary. As with a trust, no part of the insurance policy is refundable, and any assets left after funeral costs will be forwarded to the State of New Jersey.
If a family desires, a life insurance policy can also be cashed out and the proceeds used to establish a trust.
Funeral insurance or annuity. Prearrangement can also be funded through a newly issued funeral insurance policy or annuity. There are, however, a number of rules that govern these:
- Insurance and annuities specifically sold to fund a preplanned funeral arrangement in New Jersey may only be written by a licensed funeral director who is also licensed to sell life insurance (not all funeral homes offer this option).
- The insurance contract must be approved by the New Jersey Department of Insurance to be used in conjunction with funeral preplanning.
- The funeral director must disclose whether or not he or she will earn a commission from selling you this policy.
- Upon death, the insurance proceeds are paid directly to the funeral home, with any funds remaining forwarded to the state of New Jersey.
- Irrevocable insurance policies and annuity contracts for SSI/Medicaid recipients are non-refundable.
Have a conversation with your funeral director about which option may be best for you and your family, keeping in mind the regulations for making irrevocable prearrangements designed to comply with SSI/Medicaid eligibility requirements.