If you need Medicaid to pay for the cost of entering a nursing home or long-term care facility, you must meet certain financial requirements. To qualify for assistance, you must decrease your total assets to meet the allowable limit set by Medicaid. To reach this number, many people have to “spend down” their total assets so they qualify. 
Many state Medicaid programs exempt certain assets from that number. Because these exemptions aren’t considered part of the allowable limit, they can help you spend down so you qualify for Medicaid benefits more quickly. One exemption Medicaid recognizes is the cost of funeral and burial plans.
However, since Medicaid qualification rules and guidelines can be confusing, it’s important to hire the knowledgeable New York estate planning attorneys at Landskind & Ricaforte Law Group P.C. to guide you on how to meet eligibility requirements.
Meeting Medicaid Eligibility: Prepay Your Funeral Expenses
To be eligible for Medicaid, you’re limited to less than $2,000 in cash and a certain total amount in assets. However, this amount doesn’t include money you set aside for a funeral and burial. New York Medicaid allows applicants to allocate funds for their funeral in two different ways: by creating a bank account with money specifically designated for the funeral or by signing a pre-need funeral contract with a funeral home.
By setting aside these funds or pre-paying for your funeral, you can spend down your assets to help establish your Medicaid eligibility. If you’ve pre-paid for a funeral or memorial service, the entire amount is excluded as an asset: Medicaid doesn’t recognize the amount that’s been appropriated for the funeral when determining your eligibility.
Create a Bank Account
If you think you’ll need to live in a long-term care facility and need Medicaid assistance, one way you can spend down your assets is by creating a bank account specifically for the costs of a funeral and burial, up to $1,500, as of 2023. Having this money set aside is not only helpful for addressing the high cost of dying, it’s also money that won’t be counted as part of your assets when determining your Medicaid eligibility.
It's important to know that this money can’t be used to pay for transportation expenses of family or friends, their lodging, or food costs with regard to the funeral.
Sign an Irrevocable, Pre-Need Contract With a Funeral Home
Medicaid programs in most states allow applicants to allocate funds for their funeral using an irrevocable funeral trust (IFT). You can put as much money as you want into the trust and it’s not recognized by Medicaid as an asset belonging to the applicant. However, New York does not allow you to spend down your income and assets for Medicaid eligibility using an IFT. Instead, you are allowed to sign a pre-need funeral contract directly with a funeral home.
A pre-need funeral contract is made with the funeral home you want to manage your funeral service and burial. The contract spells out the specific services provided by the funeral home, the ways in which the funeral home will provide those services, and the cost for all items. So long as your pre-need funeral contract is irrevocable, which means once you sign the contract, you can’t cancel, change, or revoke it, it will be Medicaid-compliant. Medicaid will exclude the money you’ve prepaid from your total asset amount when determining eligibility for benefits. Additionally, you can create a pre-need funeral contract without violating the five-year look-back rule.
What Happens if the Funeral Home Goes Out of Business
It’s possible that the funeral home with which you choose to make your pre-need funeral contract may not be reputable or may have reliability issues. You might worry that the funeral home you’ve chosen could go out of business and you’d lose the money you used to pay for the contract. However, these businesses must inform each client who has pre-funded a funeral and advise them how they can transfer their arrangements to another funeral home. Medicaid does allow for the change of the funeral home, director, undertaker, and cemetery.
If your family learns that the funeral home you chose went bankrupt or is no longer in business, they can contact the New York State Bureau of Funeral Directing for help.