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 receipt
• 80% of funds paid for merchandise (caskets, urns, vaults) must be deposited into escrow within 10 days of receipt
• The interest earned on those funds belongs to the purchaser, not the funeral home
• The funeral home must 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. If the casket you selected is no longer available at the time of death, the funeral home must substitute a comparable item at no additional charge to your family.

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 be cancelled at any time. 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 to another licensed funeral home without penalty. The receiving funeral home must honor the contract for comparable services. This portability right is critical — an irrevocable contract does not mean you are permanently locked into one provider.

Why irrevocable contracts matter for Medicaid: Under federal Medicaid rules, an irrevocable funeral trust is generally not counted as an asset for Medicaid eligibility determination. This means that pre-paying funeral expenses through an irrevocable contract is a legal way to use assets that would otherwise disqualify you from Medicaid — without giving them away or hiding them.

Specifically, Medicaid allows the full amount of an irrevocable funeral trust to be excluded from countable assets, so long as the funds are held in trust for funeral purposes. The amount that qualifies depends on your state's Medicaid rules, but the strategy is well-established and legal.

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 is used to document changes to a pre-need contract — such as a change in selected services, a transfer to a different funeral home, or a change in the designated beneficiary. Families who inherit a pre-need contract (because the contract was established for them by a parent or spouse) should be aware that the addendum form exists and request it if any modifications are needed.

What Happens to a Prepaid Contract When the Funeral Home Closes

If a funeral home goes out of business or is sold, Maryland law requires that the escrow funds be transferred to the new owner or released to the contract holder. Funeral homes cannot simply dissolve with your prepaid funds.

If you have a prepaid contract at a funeral home that is closing, contact the Maryland Board of Morticians and Funeral Directors immediately. The Board's oversight of pre-need contracts means they can intervene in cases where funds are at risk.

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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