This week’s blog continues the discussion of Legal Issues when someone has Dementia. The introductory installment (April 30, 2015) put forth the issue of “Who can speak for someone with dementia?” The May 14, 2015 installment discussed the situation where the person with dementia has Advance Directives in place. The May 21, 2015 installment discussed the legal issues in determining whether a dementia sufferer can choose to have new Advance Directives prepared. The May 30, 2015 installment discussed options in preparing a Health Care Power of Attorney. The June 4, 2015 installment discussed how to decide whether to prepare a Living Will. The June 11, 2015 installment discussed some of the basic issues in preparing a General Power of Attorney. The June 18, 2015 installment discussed the importance of making the General Power of Attorney “durable.” The June 25, 2015 installment discussed the importance of NOT making the General Power of Attorney “springing.” The July 2, 2015 installment discussed revoking prior Powers of Attorney. The July 9, 2015 installment discussed Do Not Resuscitate orders. The July 16, 2015 installment discussed the Right of Disposition designation. The July 23, 2015 installment discussed the Will (or Last Will and Testament.) The July 31, 2015 installment discussed beneficiary designations on life insurance policies, IRAs, annuities, etc. The August 6, 2015 installment discussed whether to pre-plan a funeral. The August 14, 2015 installment discussed choosing a final resting place. The August 28, 2015 installment discussed pre-planning the funeral ceremony. Today’s installment will discuss when and how to pay for the pre-planned funeral.
Today’s installment continues the discussion of issues to manage when someone finds out that he or she has a disease that causes dementia. These issues should be managed before the dementia gets worse, before the disease takes away the person’s ability to make decisions. Following on the previous discussions [(1) whether to pre-plan a funeral, (2) choosing a final resting place, and (3) planning the funeral ceremony,] this week’s discussion will focus on paying for the funeral.
There are three choices for paying for a pre-planned funeral: Don’t pay until the funeral, pay the funeral home in advance, or buy funeral insurance. Each has some advantages and some disadvantages.
PAY AT THE TIME OF THE FUNERAL
Payment at the time of the funeral has the advantage of allowing the family to pay only for what funeral services are actually used. A pre-planned funeral is important, but the actual funeral might be smaller (i.e., less expensive) than the original plan. As we age, we outlive more of our friends and loved ones, making the cost of a funeral smaller often because of shorter calling hours and a smaller repast. Payment at the time of the funeral allows the payment to fit the actual services without the need to adjust plans to fit the pre-paid budget.
Payment at the time of the funeral also has the advantage of delaying the discomfort of dealing with the funeral any more. Pre-planning the funeral may be tough enough emotionally. Taking the extra step of paying at the time of the planning might add to the emotional weight of the task.
The disadvantage of waiting until the funeral to pay is that there may be no money left to pay for the funeral. The person’s cost of living may have used up all available funds, especially if the person needed long term care before passing away. Then, the family has to find money to pay for the funeral.
PRE-PAY THE FUNERAL HOME
Pre-paying the funeral home might lock in the costs for many of the funeral services, at least those that the funeral home provides directly. Some funeral homes make this promise for pre-paid plans. (On the other hand, some of my clients who believed that they had locked in their funeral costs by pre-payment did not, in fact, receive such a lock-in. The families had to pay more money at the time of the funerals.)
A pre-planned funeral with pre-payment at the funeral home is the easiest for the family to manage. Most of the services and most of the payment are already arranged and at the same place. It’s as close as one can get to “one stop shopping” for a funeral.
Pre-paying a funeral also has the advantage of being an allowed expense by the Medicaid rules for long term care. A person who needs long term care and who needs Medicaid coverage to pay for it is allowed (encouraged, even) to pre-pay his or her funeral. As long as the payment matches the funeral cost estimate and as long as the payment is irrevocable, the funeral fund isn’t considered an “asset” that would make the person financially ineligible for Medicaid. Pre-paying at the funeral home fits Medicaid’s requirements for a pre-paid funeral.
A disadvantage of pre-paying at the funeral home is that the funeral home may go out of business or may change ownership (to an owner whom the family may not want involved in the funeral.) Legally, the family can ask for the money in the pre-paid fund to be transferred to another funeral home. Making such a request, however, while a family member is grieving the loss of a loved one may be more difficult than the family wishes to pursue. In addition, while most pre-paid plans at a funeral home are supported by a type of funeral-specific life insurance policy, the family tends to think of the pre-payment with the funeral home, not the insurance company. If the funeral home goes out of business, the family may have no thought to look for an insurance policy. Similarly, if the person moves, the funeral may not take place at the funeral home where it was planned (because the person’s friends are near the new home.)
Another disadvantage of pre-paying at the funeral home comes from the possibility that the deceased may have been on Medicaid for long term care. (This is a little complicated.) A person in a nursing home usually has a personal account at the nursing home. It tends to be used for hair care, field trips, and visits to the snack bar. A person on Medicaid is allowed to keep some of his or her monthly income to save into this personal account. As the person ages and becomes weaker, his or her use of the personal account decreases, but the monthly deposits into the account continue. When a Medicaid recipient passes away, nursing homes (at least in my area) believe that they can pay that personal account to the person’s funeral home or to Medicaid (as a small repayment toward the amount that Medicaid had paid for the person’s care.) If the funeral home has received full payment for its services because of a pre-payment at the funeral home, the nursing home will send the contents of the personal account to Medicaid (because there isn’t an easily identified shortfall in the costs at the funeral home to which the personal account can be dedicated.)
The third disadvantage of pre-paying the funeral home is that the funeral home may not wish to accept pre-payment for expenses that are not directly for the funeral and burial. For example, some family members may need to travel to attend the funeral and to stay overnight in a hotel. In my experience, funeral homes do not wish to accept pre-payment for these expenses that are not run of the mill.
PRE-PAY VIA INSURANCE
The funeral-specific life insurance mentioned above in which the funeral home usually places the funds it receives for pre-payment is available (in Ohio anyway) for direct purchase by the public. Pre-paying the funeral through the purchase of such insurance has some of its own advantages and disadvantages.
Direct purchase funeral insurance can cover any identifiable funeral-related cost, including unusual costs like travel for out-of-town family. A cost for such unusual items must be documented at the time the insurance is purchased, but the coverage is available.
Direct purchase funeral insurance isn’t tied to any one funeral home. It can be used for any funeral service provider. This gives the family greater flexibility to use the pre-payment at any funeral home, protecting against a change of funeral home ownership or a funeral home going out of business. This flexibility also protects the pre-payment from the insured person moving to a new home after planning the funeral.
As discussed above, pre-paying a funeral is an allowed expense in the eyes of Medicaid. Medicaid does not care whether the pre-payment is at a funeral home or to a funeral insurance policy.
Because the funeral insurance isn’t tied to a particular funeral home, the family can capture the money in the personal account at the person’s nursing home. The family should ask the nursing home to pay the personal account to the funeral home. Then, the family uses the insurance policy to pay the rest of the funeral home’s costs and also any other insured costs.
As an added advantage, if the nursing home personal account is large and the projected costs haven’t gone up too much, the added money might exceed the planned costs. This gives the family a cushion to cover the cost of a service that was left out of the plan (and something is almost always left out at the pre-planning stage.)
Using funeral insurance does give up the opportunity to lock in the funeral home costs at the pre-paid level. (The funeral home may or may not offer such a lock-in, but the use of an outside insurance policy will not lock in the costs.)
Also, the use of outside funeral insurance makes it slightly (and I do mean slightly) more complicated to carry out the funeral plan. It’s not the one stop shopping like pre-paying the funeral home, but it’s not much less convenient.
I tend to have my clients use the funeral insurance. (Apologies to my friends at funeral homes that sell pre-paid funeral arrangements.) Remember, my clients hire me to help them save money on their long term care. As a result, I like the ability to capture the nursing home personal account. I also like the ability to pre-pay for the non-traditional funeral costs so that the family doesn’t have to pay for them at the time of the funeral.
I want to offer a final note about the relationship between pre-paid funerals and Medicaid. If the person pre-planning the funeral isn’t suffering from a dementia-causing disease too badly yet so that long term care doesn’t look like it will be necessary soon, the person should go ahead and pre-pay the funeral (assuming that the emotional difficulty in dealing with the funeral plans isn’t overwhelming, as discussed above.) If, though, the disease is advanced and it seems that long term care will be necessary soon, delay the pre-payment for a bit. An elder law attorney can get shelter more of the person’s assets from the costs of long term care by arranging the TIMING of the funeral payment. (There is no right or wrong time to pre-pay a funeral. There is, though, a more advantageous time to pre-pay a funeral.) The timing is very specific to each client, so I do not intend to discuss it in detail.