Maryland Prepaid Funeral Contracts: Escrow Rules, Medicaid Planning, and Your Right to Cancel or Transfer

Prepaying for your own funeral is one of those tasks that sits at the intersection of practical planning and difficult emotion. Done correctly, it removes a significant financial and logistical burden from the people who will be grieving. Done poorly — or through a funeral home that doesn't explain the rules — it can create confusion, financial loss, or unexpected Medicaid complications.

Maryland has specific laws that govern how prepaid funeral contracts must be structured, where your money must go, and what rights you retain after signing. Understanding these rules before you sign anything is the most important consumer protection available to you.

What a Prepaid Funeral Contract Is

A prepaid funeral contract (also called a pre-need contract) is an agreement with a specific funeral home to provide specific services at the time of death, paid in advance. The contract locks in the services you want and, in many cases, the price — so that inflation and pricing changes at the funeral home don't affect what your family will owe.

Prepaid contracts can cover:

• Professional services (funeral director, staff, use of facilities)
• Merchandise (casket, urn, outer burial container/vault)
• Transportation and transfer fees
• Cemetery goods (usually through a separate cemetery pre-need contract)

Maryland regulates funeral home pre-need contracts through the Maryland Board of Morticians and Funeral Directors. Cemetery pre-need contracts are separately regulated by the Maryland Office of Cemetery Oversight.

Where Your Money Must Go: Maryland's Escrow Requirements

This is the most important thing to understand before signing any prepaid contract in Maryland. The funeral home cannot simply hold your money or use it for operating expenses.

Maryland law requires:

• 100% of funds paid for professional services (funeral director fees, facility use, staff) must be deposited into an interest-bearing escrow account or trust within 10 days of finalizing the arrangement
• At least 80% of funds paid for merchandise (caskets, urns, vaults) must be deposited into escrow within 10 days of finalizing the arrangement
• The interest earned on those funds belongs to the purchaser, not the funeral home
• Ask whether the funeral home will provide an annual accounting showing the account balance, earned interest, and any withdrawals

The 20% of merchandise funds that the funeral home retains is intended to cover the funeral home's storage and acquisition costs. Ask how the contract handles a casket or other item that is no longer available at the time of death; do not assume that a substitute will be provided at no additional charge.

Ask every funeral home for the name of the escrow institution and confirm that they will provide you with annual statements. A reputable funeral home will have no hesitation answering these questions.

Revocable vs. Irrevocable Prepaid Funeral Contracts

The distinction between revocable and irrevocable contracts matters enormously — especially for anyone planning for Medicaid.

Revocable Contracts

A revocable prepaid funeral contract can generally be cancelled before death. You are entitled to a full refund of your principal (the money you deposited), along with the interest that has accrued. The funeral home cannot retain your funds or charge a substantial cancellation penalty.

If you move, change your mind about the services, or find a better price elsewhere, a revocable contract gives you flexibility. For most people who are pre-planning simply for convenience and peace of mind — not for Medicaid purposes — a revocable contract makes sense.

Irrevocable Contracts

An irrevocable prepaid funeral contract cannot be refunded. Once signed, the funds are permanently committed to funeral expenses. You cannot get the money back — but you retain the right to transfer the contract to another funeral home if you move or the original funeral home closes.

Portability: Maryland law gives holders of irrevocable prepaid contracts the right to transfer the trust's total value to another funeral establishment without an early-withdrawal penalty, unless the underlying banking institution imposes one. This portability right is critical — an irrevocable contract does not mean you are permanently locked into one provider.

Why irrevocable contracts matter for Medicaid: An individual seeking to qualify for means-tested programs such as Medicaid long-term care must use an irrevocable trust arrangement to legally spend down assets for burial purposes. This is a jurisdiction-sensitive planning decision, not a universal eligibility determination.

Funds placed in an irrevocable pre-need trust are isolated for burial purposes and cannot be refunded to the purchaser. The applicable Medicaid treatment and qualifying amount depend on the governing rules and the contract structure.

Important caveats: Medicaid planning is complex and Medicaid rules change. An irrevocable prepaid funeral contract should only be established as part of a Medicaid planning strategy with the guidance of an elder law attorney who knows Maryland Medicaid rules. Converting assets to an irrevocable funeral trust without professional guidance can create complications if the timing or structure is wrong.

The Addendum Form for Pre-Need Contracts

Maryland's Board of Morticians and Funeral Directors has an official addendum form for pre-need contracts: health.maryland.gov/bom/Documents/addendum_100.pdf

This addendum certifies the escrow and trust terms of a pre-need contract. If the selected services, funeral establishment, or other contract terms change, ask the Board or funeral home how the addendum should be updated.

What Happens to a Prepaid Contract When the Funeral Home Closes

If a funeral home goes out of business or is sold, contact the Maryland Board of Morticians and Funeral Directors about the escrow funds and your portability rights. Maryland law supports transferring the total value of an irrevocable pre-need trust to a different funeral establishment, subject to any underlying banking-institution charge.

Questions to Ask Before Signing a Prepaid Funeral Contract

1. Is this contract revocable or irrevocable?
2. What percentage of my payment goes into escrow, and within what timeframe?
3. What institution holds the escrow funds?
4. Will I receive annual statements showing the account balance?
5. Does the contract include a price guarantee, or can costs change?
6. What happens if a specific item (casket model) is no longer available?
7. What is the transfer process if I want to move this contract to a different funeral home?
8. If this is an irrevocable contract, what portability rights do I have?

A funeral home that cannot or will not answer all of these questions clearly should not receive your prepaid business.

For a complete checklist of Maryland's prepaid funeral contract rules — including what the annual statement should show, how to initiate a transfer, and the difference between irrevocable funeral trusts and other Medicaid spend-down strategies — the Maryland Funeral Laws & Consumer Rights Guide covers this topic in full alongside the rest of Maryland's funeral law framework.

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