Best Guide for North Dakota Preneed Funeral Contracts and Medicaid Rules

The best guide for North Dakota preneed funeral contracts and Medicaid rules is one that starts with a clear statement of what changed in 2019: the simple $6,000 designated burial bank account that North Dakota families had used for decades to shelter funeral funds from Medicaid asset counting no longer qualifies. The Centers for Medicare and Medicaid Services forced the North Dakota Department of Human Services to eliminate this option and replace it with a more restrictive structure. Any resource that does not address this change — or that still describes the old $6,000 designated account as a viable Medicaid planning tool — is out of date and potentially harmful.

The stakes here are real. If preneed funds are improperly structured, they count as a countable asset for Medicaid eligibility purposes. Countable assets above the allowable threshold can trigger a Medicaid penalty period or disqualification. For a family trying to spend down assets to qualify a parent or spouse for nursing home coverage, getting this wrong means the funeral funds defeat the Medicaid application.

What Changed in 2019 (and Why It Matters Now)

Before August 1, 2019, North Dakota Medicaid allowed applicants to designate up to $6,000 in a standard bank certificate of deposit or savings account for burial purposes, and those funds were excluded from Medicaid asset counting. The rule was simple, flexible, and widely used.

Sweeping state legislation effective August 1, 2019 eliminated this system. The new rules:

1. Removed the $6,000 cap — there is no longer a fixed dollar ceiling for burial fund exclusions, subject to the restriction below
2. Changed the requirement — to qualify for the Medicaid asset exclusion, preneed funeral funds must now be placed in an irrevocable itemized funeral contract, not a simple designated bank account
3. Required retroactive compliance — CMS forced the North Dakota Department of Human Services to apply these new rules to existing Medicaid recipients who had legacy designated accounts, requiring them to restructure or face disqualification

The practical effect: families cannot simply move money into a savings account earmarked for funeral expenses. The funds must be placed into a specific type of contract with a licensed funeral establishment, the contract must be irrevocable, and it must be itemized — listing specific services and merchandise to be provided.

What an Irrevocable Itemized Funeral Contract Is (and Is Not)

Under N.D.C.C. § 43-10.1, a preneed funeral contract is a binding agreement entered in advance of death between a consumer and a licensed funeral establishment or cemetery association for the provision of future funeral services or cemetery merchandise.

An irrevocable contract means you cannot cancel it and get the money back. Once funds are deposited into an irrevocable preneed contract, they are no longer accessible to the consumer for other purposes. This is precisely the feature that makes them qualify for the Medicaid asset exclusion: the funds are genuinely unavailable to meet medical expenses.

An itemized contract means the agreement specifies exactly what services and merchandise will be provided — the basic director fee, preparation of the body, a specific casket or cremation container, a particular service type, and so on. A vague agreement to "provide a funeral" does not qualify. The itemization requirement is both a consumer protection (you know exactly what you are buying) and a Medicaid compliance requirement.

What happens to remaining funds: If the actual funeral cost at the time of death is less than the amount deposited into the irrevocable contract, any residual funds must be returned to the estate — not to the heirs directly. Those residual funds are then subject to priority recovery by the North Dakota Department of Health and Human Services under Medicaid estate recovery rules (N.D.C.C. § 50-24.1-07). This means an overfunded preneed contract can partially defeat its own purpose: the overfunded amount comes back to the estate and becomes recoverable by the state.

Consumer Protections for Preneed Contracts Under North Dakota Law

North Dakota's preneed contract regulations exist to prevent the funeral establishment from misappropriating advanced funds. The protections under N.D.C.C. § 43-10.1 include:

Licensing requirement: Any entity selling a preneed contract must be a licensed North Dakota funeral establishment or cemetery association. An unlicensed person or company selling preneed contracts is violating state law.

Surety bond requirement: Licensed preneed sellers must maintain a surety bond payable to the State of North Dakota. The bond serves as a financial guarantee to reimburse consumers if the establishment fails to fulfill the contract.

Deposit requirement: All preneed funds must be promptly deposited into a federally insured bank, credit union, or trust company located within North Dakota. The funds cannot be held in the funeral home's general operating account.

Record-keeping requirement: The depository institution must maintain precise, individual records for each preneed contract: the name of the depositor, the person making payments, and the ultimate beneficiary. This prevents commingling of funds across multiple contracts.

Disclosure requirement during sale: When the preneed contract is sold, the seller must inform the purchaser to what extent the person who will hold the legal right of disposition (under N.D.C.C. § 23-06-03) will be bound by the pre-arranged decisions at the time of death. This disclosure prevents situations where a preneed contract commits a family to arrangements that the surviving legal decision-maker would not have chosen.

The Medicaid Asset Exclusion Mechanism

For a preneed funeral contract to qualify as an excluded asset under North Dakota Medicaid rules:

1. The contract must be irrevocable — the consumer cannot cancel it or retrieve the funds
2. The contract must be itemized — specific services and merchandise are listed
3. The funds must be held at a licensed North Dakota financial institution — not just any bank, and not out of state
4. The contract must be with a licensed funeral establishment or cemetery association — not a generic trust or a generic savings product

If all four conditions are met, the full amount deposited in the preneed contract is excluded from Medicaid asset counting — with no fixed dollar ceiling. A family spending down a $40,000 asset could theoretically place a reasonable funeral amount (reflecting actual anticipated costs) in an irrevocable itemized contract and exclude that amount from the asset calculation.

What "reasonable amount" means in practice: the amount in the contract should reflect realistic anticipated funeral costs in North Dakota. The average traditional funeral costs approximately $8,868 before cemetery, headstone, and flowers. Direct cremation ranges from $1,345 to $2,500. A contract significantly below or above these ranges may attract scrutiny from the Department of Human Services at the time of the Medicaid application review.

The Old Rule vs. The New Rule: Side-by-Side Comparison

Who This Is For

• Aging North Dakotans who are applying for or considering Medicaid long-term care coverage and want to shelter funeral expenses from the asset calculation
• Adult children helping a parent transition to nursing home care who need to understand the preneed contract rules before the Medicaid application is submitted
• Anyone who set up a designated burial bank account before August 1, 2019, and has not restructured it into an irrevocable itemized contract — those funds currently count as a Medicaid asset
• Families who have heard contradictory information about what the current North Dakota rules allow
• Estate planners or family members acting as future executors who want to set up compliant preneed contracts for themselves or aging relatives before the need becomes urgent

Who This Is NOT For

• People who already have a correctly structured irrevocable itemized funeral contract with a licensed North Dakota funeral home and are not approaching Medicaid application
• Families whose income and asset situation places them well above Medicaid eligibility thresholds — preneed Medicaid planning is relevant when assets are being spent down toward the Medicaid limit
• Families dealing with other aspects of estate planning (wills, trusts, mineral rights transfer) — preneed contracts are a specific Medicaid planning tool, not a general estate planning mechanism; those issues require an elder law attorney
• Families outside North Dakota — preneed contract rules and Medicaid asset exclusion standards vary by state

Tradeoffs

Irrevocable itemized funeral contract for Medicaid planning:

• Excludes the full contract amount from Medicaid asset counting
• Commits funds to specific funeral arrangements that cannot be changed without difficulty
• If the actual funeral costs less than the contract amount, residual funds return to the estate and are subject to Medicaid recovery
• Requires choosing a licensed North Dakota funeral establishment in advance — which funeral home you use at death is effectively determined when the contract is signed

No preneed contract, paying at time of death:

• Full flexibility on funeral decisions
• Funeral expenses at time of death are a deductible expense from the probate estate before Medicaid recovery
• Does not remove funds from Medicaid asset counting during the applicant's lifetime
• May result in higher funeral costs if preplanning discounts are available at the chosen funeral home

Revocable funeral trust or savings account:

• Does not qualify for Medicaid asset exclusion under current North Dakota rules
• Provides flexibility to adjust or cancel
• Counts as a Medicaid asset at time of application — defeats the spend-down purpose

When to Consult an Elder Law Attorney

A preneed funeral contract is one piece of a Medicaid spend-down strategy. By itself, it addresses only the funeral expense exclusion. If the family's situation involves:

• A home or farm that might be subject to Medicaid Estate Recovery Program (MERP) claims
• Bakken mineral rights or agricultural land that needs to be transferred via a Transfer on Death Deed before the Medicaid application
• Joint tenancy assets and questions about how North Dakota's "expanded estate" definition affects MERP recovery
• Significant assets beyond what can be sheltered through the preneed contract

— then a North Dakota elder law attorney should be involved. The preneed contract rules are manageable with good reference materials. The interaction between MERP, joint tenancy, mineral rights, and the 2019 Medicaid changes involves planning decisions that are genuinely attorney-level in complexity.

Frequently Asked Questions

Can I cancel a North Dakota irrevocable funeral contract? Irrevocable contracts are, by definition, not cancellable for cash return. However, if the licensed funeral establishment closes or becomes unable to perform the contracted services, the state's surety bond and deposit requirements provide a mechanism for consumer protection. In practice, transferring an irrevocable contract to another licensed funeral establishment is sometimes possible but must be done carefully to preserve the Medicaid exclusion status.

What if my parent already has a $6,000 designated burial savings account set up under the old rules? Those funds currently count as a Medicaid asset under the 2019 changes. If the parent is applying for Medicaid or expects to apply in the future, the designated savings account should be restructured into an irrevocable itemized funeral contract with a licensed funeral establishment. This restructuring should be done carefully — moving funds to establish a new irrevocable contract may be treated as a transfer of assets by Medicaid reviewers if not handled correctly. Consult an elder law attorney before restructuring existing accounts.

Is the money in a North Dakota preneed contract protected if the funeral home goes bankrupt? Yes — to the extent of the surety bond and the deposit requirements. North Dakota law requires preneed funds to be held at a federally insured North Dakota financial institution, separate from the funeral home's operating funds. The surety bond provides an additional layer of protection. These protections significantly reduce (though do not eliminate) the risk of loss from funeral home insolvency.

Can a preneed contract cover cremation as well as traditional burial? Yes. A preneed contract can be structured for any legally available disposition method in North Dakota, including flame cremation, alkaline hydrolysis (where available), or traditional burial. The itemization requirement means the specific services and merchandise for the chosen method must be spelled out in the contract.

Does a preneed funeral contract affect eligibility for veteran death benefits? No. Veteran death benefits — including the burial allowance from the VA and burial in a national cemetery — are federal benefits not affected by the existence of a preneed contract. Families of veterans should understand both the VA benefits available and the preneed contract rules separately.

The North Dakota Funeral Laws & Consumer Rights Guide covers the preneed contract rules under N.D.C.C. § 43-10.1 alongside the 2019 legislative changes, the Medicaid asset exclusion mechanism, and the residual funds recovery rule — in a single document built on the actual North Dakota statutes.

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