Prepaid Funeral Contract and Medicaid in Arkansas

One of the fastest and cleanest ways to reduce countable assets for Medicaid eligibility in Arkansas is to purchase an irrevocable prepaid funeral contract. Done correctly, the money spent on the contract is immediately removed from the Medicaid asset calculation — legally, permanently, and without triggering the 60-month lookback penalty. Done incorrectly, the funds remain countable and the family has locked money into a contract they cannot access.

Why Funeral Contracts Work for Spend-Down

Arkansas Medicaid counts most financial assets toward the $2,000 individual resource limit. But irrevocable prepaid funeral arrangements are categorized as exempt assets — they are specifically excluded from the Medicaid asset count.

The logic is practical: everyone needs a funeral, and prepaying is a legitimate use of funds that serves the applicant's future needs. Medicaid does not penalize families for purchasing something the person will inevitably require.

This makes prepaid funeral contracts one of the few spend-down strategies that converts cash (countable) into something useful (exempt) without any waiting period or penalty risk.

Irrevocable vs. Revocable — This Distinction Is Everything

A revocable prepaid funeral contract can be canceled and the funds returned. Because the applicant can get the money back, Medicaid counts it as an available asset. It does nothing for eligibility.

An irrevocable prepaid funeral contract cannot be canceled or refunded. The funds belong to the funeral home or trust, and the applicant has no access to them. Because the money is permanently committed, Medicaid treats it as exempt.

When purchasing a contract for Medicaid purposes, you must specifically request that it be designated irrevocable. Many funeral homes offer both options, and the default is often revocable. Ask for written confirmation that the contract is irrevocable and retain a copy for the Medicaid application file.

What You Can Include

An irrevocable prepaid funeral contract can cover a broad range of services and merchandise:

• Casket or cremation container
• Burial vault or grave liner
• Funeral service fees (visitation, ceremony, transportation)
• Embalming and preparation
• Cemetery plot and opening/closing fees
• Headstone or grave marker
• Flowers and memorial programs
• Cremation services and urn

Arkansas DHS distinguishes between current-equity funeral agreements and irrevocable prepaid contracts: each assistance-unit member receives a $1,500 disregard for current equity, while an irrevocable prepaid funeral contract has no current equity to the client and is not an available resource. Confirm the contract's structure with DHS before funding it. An average funeral in Arkansas runs $7,000–$12,000 including cemetery expenses. A $15,000 contract raises fewer questions than a $40,000 one.

Both the applicant and the community spouse can each have their own irrevocable prepaid funeral contract. For a married couple, purchasing contracts for both spouses is a common strategy to move $14,000–$24,000 out of the countable estate in a single transaction.

The Burial Trust Alternative

Instead of contracting directly with a funeral home, some families establish an irrevocable burial trust — a bank account designated specifically for funeral expenses, with the funds held in trust until needed. The trust must be irrevocable and specifically earmarked for burial expenses.

The practical difference is flexibility. A burial trust allows the family to choose any funeral provider later, while a prepaid contract locks in a specific funeral home. However, burial trusts are more scrutinized by DHS caseworkers and must be carefully structured to qualify as exempt.

In most cases, the prepaid funeral contract is simpler and more reliably accepted by DHS. Work directly with a funeral home that has experience with Medicaid families — most established funeral homes in Arkansas handle this regularly.

Common Mistakes

Buying a revocable contract by mistake. If the contract is revocable, its current equity is countable above the applicable $1,500 disregard. Confirm the treatment in writing.

Purchasing the contract during the lookback period but failing to show fair value. Buying a $10,000 funeral contract is not a gift — it is a purchase of services. This is not a lookback violation. But if DHS determines the contract price significantly exceeds the actual value of the services (paying $25,000 for a $8,000 funeral), the excess may be treated as an uncompensated transfer.

Not purchasing contracts for both spouses. If the community spouse does not have their own irrevocable contract, those funds remain in the countable estate. Purchasing contracts for both spouses is the most effective approach.

Waiting until after the Medicaid application is filed. Ideally, the contract is purchased before the application date. Post-application purchases are not prohibited, but they can slow the eligibility determination if the DHS caseworker needs to re-evaluate the asset calculation.

The Practical Sequence

For families in the middle of a Medicaid spend-down, the funeral contract is often one of the first steps:

1. Contact two or three local funeral homes and request irrevocable prepaid contract pricing
2. Purchase contracts for both the applicant and the community spouse
3. Obtain written confirmation that each contract is irrevocable
4. Include the contracts in the Medicaid application documentation as exempt assets

This single step can remove $15,000–$25,000 from the countable estate immediately, bringing many families significantly closer to the $2,000 asset threshold.

The Arkansas Medicaid Long-Term Care Guide includes the full spend-down checklist with funeral contracts alongside other exempt asset conversions — home repairs, vehicle purchases, and debt payoffs — that families can use to reach eligibility without wasting assets.

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