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Benefits of Advance Funding
- Makes sure your family won't face a financial burden at an unexpected time.
- Greatly reduces or even eliminates the impact of cost increases due to inflation. Your beneficiaries' life insurance benefits won't be eroded by funeral costs. Properly structured pre-paid funeral expenses are exempt from Medical Assistance asset limitations.
The Minnesota Funeral Directors Association owns and operates The Minnesota Funeral Plan®, which is a complete package of funeral and cremation pre-funding options. The Minnesota Funeral Plan allows the public to purchase pre-paid burials through MFDA members with ease and confidence. A person may fund a pre-arranged funeral by purchasing a specially designed life insurance or annuity policy (Pre-need Insurance).
Pre-Need Insurance, like that offered by The Minnesota Funeral Plan®, is a specialized form of life insurance designed for funeral pre-funding. Generally, preneed life insurance or annuity policies have the following features:
- Guaranteed or Simplified Issue so those who are typically uninsurable may receive coverage.
- Single payment or payment plan options. For those who qualify, payment plans are fully insured, meaning the insurance company pays the balance of the funeral bill if you die prior to finishing the planned payments.
- Medical Assistance-compliant paperwork that makes the policy an exempt asset for Medical Assistance purposes.
- An irrevocable assignment of ownership or benefits helps ensure the funds will be available when they are needed.
- Tax-free or tax-deferred policy growth.
- Funds are safeguarded by the Minnesota Life and Health Guarantee Association (MN residents only).
Irrevocable Bank Trusts are held in banks, savings and loan associations, or credit unions.
- By law, a licensed funeral establishment establishes a trust and holds your funds as trustee in a Federally backed account.
- Typically, funds are held in a certificate of deposit or savings account.
- An irrevocable trust can never be cashed in prior to death, helping ensure that the funds will be available when they are needed.
- The interest earnings are taxable.
- FDIC or another instrumentality of the government backs the funds.
Revocable Bank Trustsare also held in banks, savings and loan associations, or credit unions.
- By law, a licensed funeral establishment establishes a trust and holds your funds as trustee in a government backed account.
- Typically, funds are held in a certificate of deposit or savings account.
- A revocable trust may be cashed in at any time, but revocable trusts have lower asset exemptions under Medical Assistance rules. FDIC or another instrumentality of the government backs the funds.
Life Insurance Assignments are another way to pre-fund your funeral service. A life insurance assignment is created when you pledge an existing life insurance policy to a funeral establishment in exchange for the funeral establishment's future services.
Personal Life Insurance Policies or Annuities purchased for final expenses are an option. Typically these policies are not recommended for pre-funding funerals because they often do not contain all the supporting trust and assignment documentation to safeguard the funds adequately. These policies also have low exemption limits when applied for Public Assistance or Medical Assistance. That means the policy may have to be surrendered for cash prior to applying for Medical Assistance.
Personal Accounts such as certificates of deposits, savings accounts, IRAs, or money market accounts are also used when set up as joint accounts or made payable on death.
- Typically these funds are not recommended for pre-funding funerals because they most likely do not contain all the supporting trust and assignment documentation to safeguard the funds adequately.
- These funds also have low exemption limits under Public Assistance or Medical Assistance rules. That means the funds may have to be spent prior to applying for Medical Assistance.
Which pre-funding option you choose depends on your circumstances and your needs.
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