Texas Medicaid Burial Rules: Prepaid Funerals, Burial Funds and Life Insurance

Texas Medicaid burial rules decide which funeral plans, burial plots and life insurance policies count against you when you apply for nursing facility Medicaid through Medicaid for the Elderly and People with Disabilities (MEPD). Texas follows the federal $1,500 model closely, but its handbook adds details about prepaid funeral contracts, refund values and life insurance assignments that can change the result. This guide walks through the Texas Medicaid burial rules using the Health and Human Services Commission (HHSC) MEPD Handbook and Texas law.

This is general information, not legal advice. A mistake with a policy or contract can delay coverage. Before you cancel, assign or buy anything, talk with a Texas elder law attorney. HHSC makes the eligibility decision.

Texas Medicaid burial rules and the $2,000 resource limit

MEPD has a small resource limit. Under MEPD Handbook F-1300, the limit has been the same since 1989:

Figures are from the HHSC MEPD Handbook as read on October 15, 2026, and are shown for illustration only. They are not quotes or offers, and they can change. Confirm current numbers with HHSC or a licensed agent.

Because the limit is so low, the Texas Medicaid burial rules often decide whether a nursing home applicant qualifies. Spousal rules for a husband or wife who stays at home are separate and are not covered here.

How Texas Medicaid life insurance is counted

Texas Medicaid life insurance rules look at face value per insured person. Under F-4223 and F-4223.1:

• $1,500 or less: a policy is excluded if its face value, plus the face value of any other policies you own on the same insured person, totals $1,500 or less.
• Over $1,500: the cash surrender values of those policies are resources.
• Left out of the total: burial insurance and term policies that do not build cash value.

F-4226 says term insurance and burial insurance are not resources. Burial insurance, in the handbook’s words, “is a form of term insurance” whose proceeds can be used only for the insured’s burial expenses.

There is a trade-off. If a small whole life policy is excluded under the $1,500 test, its face value reduces your burial fund exclusion, covered next.

The Texas Medicaid burial fund: $1,500, minus offsets

Under F-4227, HHSC excludes up to $1,500 per person for money set aside and designated for burial. The Texas Medicaid burial fund is smaller than it looks because F-4228 tells caseworkers to subtract, in order:

1. The value of any irrevocable burial arrangement on the person, such as a trust, contract or burial insurance, whether the person owns it or not.
2. The total face value of excluded whole life policies the person owns.

Whatever is left is what you can designate. Other rules:

• How to designate: a note on the account document or a signed statement, such as Form H1252. The money must be clearly set aside for burial, cremation or related costs.
• Notice: before denying for excess resources, HHSC sends Form H1277, which tells you that you can designate money for burial.
• Interest: interest that builds up in excluded burial funds is not counted (F-4229).
• Using the fund: spending a designated burial account on a prepaid funeral contract is not treated as misuse (F-4230).

This matches the federal SSI method in 20 CFR 416.1231(b) (federal), which uses the same $1,500 amount and the same offsets.

How a Texas prepaid funeral contract is treated

MEPD handbook F-4160 explains how HHSC values a Texas prepaid funeral contract:

• Revocable contract: the refund value, meaning what you would get back if you canceled, is an available resource.
• Irrevocable contract: a person can irrevocably waive the right to cancel. The contract then has no refund value and is not countable, but its value reduces the $1,500 burial fund dollar for dollar.
• Timing: if made irrevocable before certification, it is treated as irrevocable for the application month and the three months before.
• Burial space items in the contract, such as a casket or vault, can be excluded only if the contract is paid in full and the items are listed separately.

The handbook sets no dollar cap on an irrevocable contract. Its effect is felt through the $1,500 offset.

Many contracts are funded by life insurance. Under F-4170 and F-4172, if a policy is irrevocably assigned to a funeral home under a prearranged contract, “the life insurance is not a resource because it is no longer owned by the person.” A revocable assignment does not work that way: the cash value stays countable (F-4171).

Texas Finance Code chapter 154, read via the Texas statutes site, adds consumer rules. Sellers need a permit from the Texas Department of Banking (section 154.101). A purchaser may cancel before maturity by written notice (section 154.155). An insurance assignment to the seller generally may not be made irrevocable unless it is made solely to help the purchaser qualify for Medicaid or another public assistance program (section 154.206(b)).

Burial spaces under Texas Medicaid burial rules

F-4214 excludes burial spaces held for you, your spouse or other immediate family, with no dollar limit. Burial space items include a casket, urn, niche or other repository, plus necessary improvements such as vaults and headstones. Only one item per person is excluded for items that serve the same purpose.

Under the Texas Medicaid burial rules, “immediate family” includes a spouse, minor and adult children and stepchildren, among the relatives F-4214 lists, but it does not include grandchildren. You, or a family member whose resources are counted with yours, must own the space or the purchase agreement.

Hypothetical example: Texas Medicaid burial rules in practice

Hypothetical example. Robert is 79, single, and applying for nursing facility Medicaid. His resource limit is $2,000. He owns:

• A checking account with $1,200.
• A savings account with $700.
• A small whole life policy on himself: $3,000 face value, $1,900 cash surrender value.
• A paid-in-full Texas prepaid funeral contract that he made irrevocable. The funeral services portion is $5,500.

Step 1, the life insurance. Face value is $3,000, which is more than $1,500. The $1,900 cash value counts.

Step 2, the burial fund. The irrevocable contract is not counted. But its $5,500 service value reduces the $1,500 Texas Medicaid burial fund to zero ($1,500 − $5,500 is below zero). Robert cannot designate his savings for burial.

Step 3, total. $1,200 + $700 + $1,900 = $3,800 countable. That is $3,800 − $2,000 = $1,800 over the limit.

One possible fix. Suppose that, with an attorney’s help, Robert irrevocably assigns the whole life policy to his funeral home to fund added services under a prearranged contract. Under F-4170 and F-4172, the policy is no longer his resource. His countable resources become $1,200 + $700 = $1,900, under $2,000. Whether this works depends on the paperwork, so treat this as an illustration only.

Texas estate recovery basics

Texas runs the Medicaid Estate Recovery Program (MERP) under 1 Texas Administrative Code chapter 373, adopted effective March 1, 2005. In plain terms:

• MERP may file a claim against the estate of a person aged 55 or older who received covered long-term care services (section 373.205).
• The claim is filed in probate court as a Class 7 claim (sections 373.201 and 373.205).
• Claims are not sought while there is a surviving spouse, a child under 21, a blind or disabled child, or an unmarried adult child who lived in the homestead continuously for at least a year (section 373.207).
• Recovery is treated as not cost-effective when the recoverable estate is $10,000 or less or the recoverable Medicaid cost is $3,000 or less (section 373.215).
• Heirs can ask for an undue hardship waiver (section 373.209).

Because claims run through probate, ask your attorney how naming a living beneficiary on each policy affects what passes through the estate.

Checklist: Texas Medicaid burial rules

1. List every policy you own, the insured person, face value and cash value.
2. Add face value per insured person, leaving out term and burial insurance. Compare it with $1,500.
3. Ask each funeral home whether your Texas prepaid funeral contract is revocable and what the refund value is.
4. Subtract any irrevocable arrangement and excluded whole life face value from $1,500 to see what Texas Medicaid burial fund room is left.
5. Designate any burial money in writing and keep it in its own account.
6. Keep itemized contracts showing burial space items separately.
7. Do not assign or surrender a policy before your attorney reviews it.
8. Check every beneficiary form.

Texas Medicaid burial rules: frequently asked questions

How much can I set aside for burial under Texas Medicaid?

Up to $1,500 per person under F-4227, reduced by any irrevocable burial arrangement and by the face value of excluded whole life policies you own. Burial spaces are excluded separately.

Does Texas Medicaid count my life insurance?

Under the Texas Medicaid life insurance rule, the policy is excluded if the face value of the policies you own on that insured person totals $1,500 or less. Above that, the cash surrender value counts. Term and burial insurance are not resources.

Does an irrevocable funeral contract count in Texas?

No. An irrevocable contract has no refund value and is not countable under F-4160. Its value does reduce your $1,500 burial fund exclusion dollar for dollar.

Can I assign my policy to a funeral home?

Yes. An irrevocable assignment to a funeral home under a prearranged contract removes the policy from your resources (F-4172). A revocable assignment does not, and the cash value still counts.

Will Texas take my house after I die?

MERP may file a probate claim if you were 55 or older and received covered long-term care services. Claims are not sought while a spouse, a child under 21, a disabled child or a qualifying adult child in the homestead survives. An attorney can explain how this applies to your home.

Where can I get help with my Texas case?

HHSC decides eligibility. A Texas elder law attorney can review your contracts. Our Texas life insurance guide covers the state’s general policy rules.

How Octans can help

Octans is an independent agency based in Massachusetts. Our licensed agents compare final expense insurance and burial insurance from more than 120 carriers and can explain how each type fits the Texas Medicaid life insurance rules. Try our funeral cost calculator or read about life insurance for seniors. We are not attorneys, so please confirm the Medicaid effect with your elder law attorney before you buy. Call (617) 935-9220.

Keep Reading: Related Guides

• Life insurance in Texas
• Final expense insurance
• Burial insurance
• Funeral cost calculator
• Medicare Advantage plans in Texas (2027)
• Free Medicare help in Texas
• Unclaimed life insurance in Texas

Important: Octans Insurance agents are licensed in the states in which they operate. Coverage availability and rates may vary by state. Premium examples, when provided, are illustrative samples from published sources, not quotes. Final rates are determined by the insurance carrier based on underwriting and applicable policy criteria. Policy terms, exclusions, limitations, riders, and availability vary by carrier and state.

Plan Ahead for Final Expenses

Start with a free, no-obligation quote review with a licensed Octans agent.

GET YOUR FREE QUOTE

(617) 935-9220 | life@octansinsurance.com