Medicaid Planning - The Eternal Gift of an Irrevocable Funeral Trust

As part of a long-term care plan, Medicaid applicants often purchase pre-need funeral agreements prior to submitting their applications. Until January 1, 1997, pre-need funeral agreements were revocable, i.e. the Medicaid applicant could cancel the agreement and be refunded his money.

In 1996, the General Business Law and Social Services Law were amended to provide that if a Medicaid or Supplemental Security Income applicant/recipient (A/R) establishes a pre-need funeral agreement on or after January 1, 1997, the agreement must be irrevocable in order for the funds to be considered exempt for Medicaid/SSI purposes. Any funds remaining in the irrevocable pre-need funeral agreement after payment of all funeral and burial expenses must be paid to the social services agency.

The law was amended again in 2010 to require that effective on or after January 1, 2011, pre-need funeral agreements established by an SSI or Medicaid applicant/recipient for a family member must be irrevocable if the funds used are to be disregarded as an available resource.

On July 11, 2011, the New York State Department of Health issued Transmittal 11 OHIP/ADM-4, clarifying the definition of "family members" as " applicant/recipient's spouse, minor and adult children (including adoptive children and stepchildren), brothers, sisters, parents, adoptive parents and the spouses of those individuals as long as the marriage is in effect." These agreements established with assets of an A/R or a legally responsible relative for the funeral and/or burial expenses of a family member must also be irrevocable in order to be considered exempt.

Therefore, the funds used to purchase irrevocable pre-need funeral agreements for these family members are not considered available resources of the A/R. In addition, as long as the A/R or his or her spouse pays fair market value for the pre-need funeral agreements, the purchase of these agreements are not considered gifts for Medicaid transfer purposes.

Hence, an A/R can purchase an irrevocable funeral agreement for his or her adult children, siblings, parents and the spouses of those individuals and the purchase will not impact nursing home Medicaid eligibility. However, the A/R must purchase the agreement prior to the month the A/R is seeking Medicaid coverage.

This presents a unique last minute planning opportunity for the A/R to reduce his available resources for Medicaid eligibility purposes. At the same time, he has the satisfaction of knowing that he has helped his family members.

While a pre-need funeral agreement usually includes pre-paid burial space items, certain burial space items can be purchased and paid for in full prior to entering into an irrevocable pre-need agreement. These items include urn, vault, crypt, and headstone and remain outside the agreement. Burial space items purchased outside of a pre-need agreement are not treated as a countable resource.

In addition to being permitted to purchase irrevocable pre-need agreements, SSI related A/Rs may supplement the funeral agreement with a separate burial fund of up to $1,500 ($3,000 for a couple) when the funeral agreement includes less than $1,500 ($3,000 for a couple) in non-burial space items. Life insurance policies owned by the A/R or the A/R's spouse must be counted first toward the supplemental burial fund amount.

EXPANDED ESTATE RECOVERY EMERGENCY REGULATIONS HAVE EXPIRED. The NYS Department of Health issued an informational directive, GIS 11 MA/028, informing local Medicaid districts that effective 12/6/2011, the revised regulation that implemented the expanded definition of estate for Medicaid recovery purposes expired. The method used to evaluate life estate interests pursuant to the guidance provided in 11 OHIP/ADM 8 continues to apply. Permanent regulations are likely to be issued by DOH shortly.