Prepaid funeral arrangements offer an applicant for financial assistance under SSI/Medicaid the opportunity to completely pay for the funeral of their choice before assets are used up for medical care and before their assets are reduced to SSI/Medicaid eligibility levels.
Effective January 1, 1997 - New York State law mandates that all contracts for prefunded funerals executed by applicants for or recipients of Medicaid be IRREVOCABLE.
Many New York residents prearrange and prefund their funerals as part of regular estate planning. In fact, many consumer advocates applaud the concept. Reasons for preplanning one's final expenses include peace of mind, relieving the burden on loved ones, or for purposes of SSI/Medicaid spend down. There are a number of advantages to preplanning and prefunding funeral expenses. The primary advantage is that it allows individuals the opportunity to make personal and specific selections for the funeral service that most closely meets their needs. For many, it is comforting to know that money has been set aside for their final expenses, which will in turn reduce the burden on family members at a difficult time. In addition, loved ones are not left guessing which type of funeral service would have been preferred. Another very important reason to establish a preneed burial trust is that SSI/Medicaid recipients are allowed to set aside money to fully fund the service of their choice before their funds are exhausted down to necessary eligibility levels.
Consumers in New York State benefit from the strictest, most comprehensive funeral preneed laws in the country. In New York State, 100% of the principal and interest must accrue to the benefit of the trust (less a third party Trustee administrative fee), which must be deposited in an investment backed by the government of the United States. For this purpose, many New York funeral directors use NYSFDA's funeral preneed trust program, the PrePlanSM. PrePlanSM is a commingled trust invested solely in FDIC insured certificates of deposit. Five Trustees, who are members of the New York State Funeral Directors Association and are carefully appointed by the NYSFDA Board of Directors, oversee the operations of the trust. PrePlanSM currently services 40,000 consumer trust accounts for over 500 funeral firms.
Below is a description of what you should expect from a prearrangement conference.
The law requires the funeral director to provide the consumer with the following:
New York State mandates that prearrangements with New York funeral firms MUST be REVOCABLE, except for SSI/Medicaid recipients. This means that all prearrangements (except when prepared for Medicaid spend down) may be canceled at any time prior to death and the entire balance, including all accrued interest, must be refunded within ten days of the request.
New York State also mandates that preneed burial trusts for applicants or recipients of SSI/Medicaid MUST be IRREVOCABLE. This means that the prearrangement MAY NOT be canceled prior to death. It may, however, be transferred to a different funeral home at any time.
Aside from being revocable or irrevocable, there are essentially two types of preneed agreements. Following is a description of each:
The funeral home may offer a guaranteed preneed agreement whereby the price of the funeral services and merchandise is guaranteed not to exceed the balance in your trust account at the time that the funeral is provided. The Guarantee will most likely be null and void if withdrawals are made from the trust account and generally will not apply to certain items such as cemetery costs, clergy fees, death certificate fees, etc. Please note, however, that the funeral home may not charge more than the actual cost for these third party items.
A non-guaranteed agreement indicates that the funeral home will provide the funeral services and merchandise selected at the cost of those items at the time of your funeral. If the total cost of the funeral exceeds the amount in the trust account, the additional expense will be due. If the total cost is less than the balance in the account, the excess funds will be refunded (except irrevocable trusts). The cost of the items at the time of your funeral must correspond with the funeral home's printed General Price List at that time.
The Internal Revenue Service has determined that Purchasers of preneed funeral trusts are responsible for any income tax (if the Purchaser is required to file) resulting from interest earned on the trust account. The funds, although set aside as payment for funeral expenses, always remain the property of the Purchaser. With the exception of irrevocable trusts, a Purchaser always maintains the right to withdraw the funds at any time prior to the performance of the funeral. Although withdrawals are not permitted from irrevocable trusts, the funds may be transferred to a different funeral firm at any time.
A Purchaser should receive a tax information statement each year by January 31st, (i.e., 1099 or K-1Grantor Trust Statement) indicating the amount of interest earned on the account for the previous year. In addition, at any time upon written request, a funeral firm must provide a Purchaser with an accurate balance including principal and accrued interest.
Most funeral firms are extremely knowledgeable concerning all aspects of prepaid funerals in general, spicifics on SSI/Medicaid, and often have the added benefit of local Social Services Department relationships which may make this part of the "spend down" process go more smoothly.
"It was the judgment of Congress that persons should not have to choose between lifesaving welfare assistance and giving up their plan for the disposition of their bodily remains." A 1982 amendment to the Social Security Act implemented a program whereby SSI/Medicaid eligible persons can set aside funds for their funeral and burial before their resources are exhausted by medical bills or their income declines to such a level that they need the cash assistance provided by the Supplemental Security Income (SSI) program. This program was implemented through specific resource exclusions for prepaid funeral contracts.
There is often confusion about what each of these programs provide, specifically Medicaid and Medicare. Below are brief descriptions of each:
Medicare is authorized under the Social Security Act and is part of a national health insurance program for the aged and certain disabled persons. Medicare is administered by the Health Care Financing Administration under the US Department of Health and Human Services.
Medicaid is a joint state-federal health insurance program for low-income individuals. It is administered by individual states with federal oversight and regulation by the Health Care Financing Administration. Currently, all resources placed in an irrevocable funeral fund are excluded when an individual applies for Medicaid. Revocable contracts as an excludable resource are limited to $1,500. Please note that the revocable $1,500 limit is reduced proportionally by any irrevocable funeral funds or insurance policies. State Medicaid plans are currently linked to federal SSI eligibility criteria, however, individual states make their own Medicaid determinations using the federal SSI criteria.
SSI is a means-tested, federally administered income assistance program that provides monthly cash payments to the needy, aged, blind and disabled in accordance with uniform nationwide eligibility requirements. SSI is administered by the Health Care Financing Administration under the US Department of Health and Human Services. The limit on countable resources for SSI is $2000 per individual and $3000 per couple. All irrevocable preneed funds are excluded and any revocable preneed funds of up to $1,500 for funeral expenses and unlimited burial space expenses (funeral merchandise) per individual are excluded, with limited exceptions, for SSI eligibility purposes.
Any individual who is an applicant or recipient of SSI/Medicaid, and in the "spend down" process, should meet with a funeral director. During a prearrangement conference, the individuals should select which funeral services and merchandise he or she desires as disclosed on a "General Price List." The funeral director will then note these selections on an itemized statement (commonly known as a "Preneed Itemization Statement") which will reflect the current retail value of the merchandise and services selected. The next step is funding the arrangements. Funeral prearrangements will qualify as a prepaid funeral resource exclusion if the funds are placed in an irrevocable prepaid funeral trust account.
A trust which is titled "irrevocable" means that any refund, withdrawal or other disposition of the deposits on account plus accrued interest, for any purpose, will and must legally be refused by the funeral director and/or funeral trust or financial institution.
Purchasers who have entered into irrevocable burial trusts may only use the funds for payment of funeral services and merchandise upon the death of the intended funeral recipient. Any excess in the trust account after payment of funeral expenses must be returned to the local county Social Services Department in which the intended funeral recipient resided, to be earmarked for indigent burials.
All documentation generated by this process must meet stringent federal and state requirements for resource qualification and funeral service disclosures. Social Services personnel require evidence that the funeral arrangements exist and that they are linked irrevocably to the funding vehicle. Additionally, all of the documentation generated by the funeral home must meet Federal Trade Commission standards for price and itemization disclosure, and all of the provisions of Section 453 of the New York State General Business Law.
The 1996 amendment to the Social Services law which allows the creation of irrevocable trusts for applicants/recipients of SSI and/or Medicaid also sets high business and ethical standards for prepaid funeral arrangements. The following consumer protections were built into the law with that amendment.
The law allows the consumer to change funeral homes at any time prior to death without effecting the irrevocability of the arrangements themselves. If such a transfer is desired, a new irrevocable preneed agreement with the newly selected funeral home must be generated. The transfer of irrevocable preneed funds may, however, ONLY be made payable to another funeral home, or another funeral trust program.
Additionally, the law permits the beneficiaryâ€™s family, at the time of need, to select different goods and services from those originally prearranged. Please note, however, that the funds in the account may only be used for payment of funeral services and merchandise. Any remaining funds in the account after payment of funeral services and merchandise, must be remitted by the funeral director to the County Social Services Department.
New York law mandates that every irrevocable preneed agreement contain in a minimum of 12 point type, the following consumer disclosure:
"New York Law requires this agreement to be irrevocable for applicants for receipt of supplemental security benefits under section two hundred nine of the Social Services Law or of medical assistance under section three hundred sixty-six of the Social Services Law, and for the moneys put into a trust under this agreement to be used only for funeral and burial expenses. If any money is left over after your funeral and burial expenses have been paid, it will go to the county. You may change your choice of funeral home at any time."
All literature promoting prearranged funeral and burial services prepared after January 1, 1997 must contain language disclosing the irrevocable nature of burial trusts established for an applicant or recipient of supplemental security income benefits or medical assistance. Following are some samples of the language that could be used:
"New York State law mandates that all contracts for prefunded funerals executed by applicants for or recipients of Medicaid be irrevocable."
"New York State law mandates that funeral trust funds for Medicaid recipients pay for funeral and burial expenses only. These contracts must be irrevocable."
No. Life insurance cannot be used in an irrevocable trust.
None. Funeral prearrangements may be completely prefunded.
The county in which the Medicaid applicant or recipient resided (most likely the county in which they applied for assistance).
No. The overage to existing revocable contracts of Medicaid recipients should be returned to the Purchaser.
The Purchaser or their legal representative must authorize a transfer of the irrevocable trust to another funeral home.
No. Only SSI/Medicaid applicants/recipients may set up irrevocable preneed trusts in New York State.
Yes, but they must sign a new irrevocable preneed agreement.
No. If a consumer had both a pre-existing agreement and was receiving Medicaid benefits prior to January 1, 1997, their account may remain revocable, and must still be recertified on an annual basis by County Social Services personnel.
Yes, but if a less expensive funeral is purchased, the overage must be remitted to the county Social Services Department.
No. The funeral director should not be involved in the use of the Personal Needs Account. A Purchaser of an irrevocable burial trust may still maintain the maximum allowable Medicaid eligibility personal resource level, in addition to the irrevocable trust. That level is currently $3,550 per individual or $5,150 per couple.
Yes. Any promotional material printed must contain language disclosing the irrevocable nature of burial trusts established for individuals receiving or applying for supplemental security income or medical assistance.