“The Importance of a Pre-Paid Funeral or Burial Reserve”

Lesley M. Mehalick, J.D., LL.M.

When a loved one has special needs and is receiving public benefits, the family should consider proactive planning for that person’s funeral and burial plans. While these are often difficult issues to consider, various options exist to pre-pay for these arrangements using the monies held in a special needs trust for the benefit of the person with special needs. Pre-paying for these necessary services is a proper use of the disabled person’s funds that will not endanger his or her eligibility for essential public benefits.

It is critical to do this planning during the disabled person’s lifetime as after the person’s passing, different rules may apply, and monies left in a special needs trust or estate may be subject to a repayment to government entities for public benefits provided during the person’s lifetime. These repayments typically must be made before the funds can be used toward a funeral and thus, opportunities for planning may be lost.

In general, a person who receives public benefits that are resource and income dependant is allowed to own a burial space and also to have a burial reserve. A burial space is defined as a conventional grave site, a mausoleum, urn or other repository used to deposit the remains of a deceased person. A burial reserve is defined as funds or other resources held in trust or under contract with a financial institution or a funeral director, and designated for burial expenses. The term may also be known as funeral reserves, funeral agreements, prepaid funeral agreements, burial funds and burial agreements. These are not considered as countable assets, and as such, they will not disqualify a person for public benefits.

Burial reserves come in various forms, but the most common options are a pre-paid funeral, an irrevocable burial reserve and a revocable burial reserve. The first option is to pre-pay for a funeral by entering into a contract with a local funeral home. When choosing this option, it is important to select a reputable funeral home that will continue to be in business for some time. Another option is to fund an irrevocable burial reserve. An irrevocable burial reserve is an account held at a bank, which is irrevocable and specifically earmarked for funeral purposes. The account must be titled as an “irrevocable burial reserve.” The amount with which these accounts may be funded vary from County to County, but in general, they can be funded with approximately $8,000.00 to $12,500.00. A person may have a revocable burial reserve of up to $1,500.00 and still qualify for public benefits. Any amount in excess of that will be considered an available resource and may disqualify that person for public benefits. Because any revocable burial reserve may not exceed $1,500.00, it is generally recommend that an irrevocable reserve be sought.

While the laws vary depending on the exact circumstance, in general, when a recipient of public benefits passes away, government entities must be notified of the passing and of the amount remaining in a special needs trust or estate. A right to be repaid for the amount of medical assistance provided on behalf of the disabled beneficiary may then be asserted. Typically, where a self-funded special needs trust is involved, any such repayment must be made before the trust monies can be used to pay for the person’s funeral or for any other purpose. If the payback is substantial, there may be insufficient funds remaining to pay for the funeral and burial. Thus, the payment of these often costly items may fall to family members.

By pursuing advance planning during the disabled person’s lifetime, the family may prepay for a funeral; this is an appropriate use of the person’s funds that will not adversely affect public benefits but that may provide peace of mind and prevent a possible financial burden to the family.