This article is a section taken from MA for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability (MA-ABD), a part of the revisions and additions to the Minnesota Health Care Program Eligibility Policy Manual.
Burial contracts are contractual agreements between a consumer and a funeral provider, such as a funeral home or a cremation society. Burial agreements require that a buyer pay in advance for funeral services and items that a funeral director agrees to furnish upon the death of the buyer or other designated person.
Burial contracts are funded in a variety of ways. The burial contract and the funding source are two separate items and both must be evaluated.
The Burial Contract
In exchange for the buyer paying in advance, the funeral provider draws up a contract, itemizing burial services and/or burial space items, and noting the amount allocated towards each service and space.
Burial space items (BSI) includes a repository used for bodily remains, as well as services performed at the burial location, and burial goods related to a person’s burial site. BSIs include, but are not limited to:
- Burial plot or site
- Burial container (for a casket)
- Headstone, marker or plaque
- Opening/closing of the grave
- One-time payment for care and maintenance of the gravesite sometimes called preservation or perpetual care
Burial services prepare the body for burial and all services prior to burial. Burial services include, but are not limited to:
- Transportation of the body
- Services of the funeral director and staff
Burial contracts may be irrevocable, revocable, or a combination.
Irrevocable Burial Contracts
If a burial contract is irrevocable, the funds deposited into the agreement are unavailable and cannot be withdrawn by the person or the funeral provider until the time of need. Irrevocable burial contracts include those funded by life insurance, those funded by annuities, and those in which the person directly pays the funeral provider.
Interest earned on these contracts may be separately designated as revocable or irrevocable. If the interest is designated as irrevocable, it is unavailable. If the interest is designated as revocable, it is a counted asset.
Revocable Burial Contracts
If an agreement is revocable, the funds deposited into the agreement are available and can be withdrawn at any time. A revocable burial contract may be an excludable asset, depending on what burial costs it is intended to cover and whether any portion of the allocated funds can be excluded due to the burial space exclusion (BSE) or the burial fund exclusion (BFE).
When a revocable burial contract is a countable asset, either the amount the owner would receive if the contract was revoked, or the current market value if it is a saleable contract, is counted.
The Funding Source
A person may fund a burial contract in several ways, with the most common funding sources being liquid assets, life insurance policies, and annuity policies purchased from an insurance company. This section describes how these funding sources are evaluated.
A. Liquid Assets and Pre-Need Burial Agreements
Liquid assets may be designated for burial expenses. This category includes cash and bank accounts and financial instruments with a cash value, such as stocks, bonds, and certificates of deposit. If these assets are applied to the BFE, they must be kept in a separate account and designated for burial.
Pre-need burial arrangements funded by liquid assets contain the following unique provisions in Minnesota:
- A specific funeral provider draws up the contract, but state law requires freedom of choice, meaning the family may choose a funeral provider when the person dies.
- The funeral provider must place available funds into a trust for the person’s burial expenses.
- If it is an irrevocable agreement, the purchaser may designate an irrevocable amount up to $2,000 for burial services. Any amount over $2,000 for services and any amount not designated as a BSI can be cashed in at any time.
- Interest earned is either revocable or irrevocable, as designated by the purchaser.
- The contract itemizes burial services separate from BSIs (generally on a Statement of Goods and Services).
B. Life Insurance-Funded Burials and Annuity-Funded Burials
A life insurance-funded burial (LIFB) involves a person purchasing a life insurance policy on his or her own life. Life insurance funded burial contracts are not burial insurance.
If an annuity policy is being used to fund a burial contract, it is called an annuity-funded burial (AFB) and follows LIFB policies. Otherwise, see Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability (MA-ABD) Annuities for how the annuity is evaluated as an asset.
A person may assign, revocably or irrevocably, either the proceeds or ownership of an LIFB/AFB policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a burial contract.
Effect of Assignment of Ownership on Burial Exclusions
- The BSE does not apply, because the funeral provider has not received any payment and no purchase of burial spaces has been made.
- The BFE may apply. The asset value of the burial contract is equal to the cash surrender value (CSV) of the LIFB/AFB policy, subject to the $1,500 BFE.
- The BSE may apply, depending on the nature of the contract. See MA-ABD Burial Space Exclusion for more information. Any portion of the contract that represents the purchase of a burial space has no effect on the BFE.
- The LIFB/AFB policy and the burial contract are not assets because the person no longer owns them. The face value (FV) of the burial funds portion of the contract offsets the $1,500 BFE because the contract represents an irrevocable arrangement available to meet the person’s burial.
- A person’s estate must be named as contingent beneficiary. If a person’s estate is not named as contingent beneficiary, the policy is treated as a life insurance policy, not an LIFB/AFB.
Proceeds of an LIFB/AFB policy are the FV of the policy plus any additions payable at maturity or death. This does not include dividends, CSV or interest.
Effect of Assignment of Proceeds on Burial Exclusions
- The BSE does not apply to the CSV of the LIFB/AFB policy. This is because the funeral provider has not received any payment and no purchase of burial spaces has been made.
- The asset values of the burial contract are equal to the CSV of the LIFB/AFB policy. If the FV of all LIFB/AFB policies on the person’s life is $1,500 or less, the CSV is excluded under the life insurance exclusion. If the FV of all policies exceeds $1,500, the CSV of the policy is treated according to the BFE.
- Life insurance companies generally do not permit the proceeds of a LIFB/AFB policy to be irrevocably assigned.
Dividend accumulations of a LIFB/AFB are not counted as part of the value of the policy or the burial contract. Dividend accumulations are separate assets and must be designated separately in order to qualify for the BFE. If ownership of the life insurance policy has been irrevocably assigned, absent evidence to the contrary, it is assumed that the dividend accumulations are also assigned.
Minnesota Statutes, section 256B.056, subdivision 1a
CREDIT: The content of this post has been copied or adopted from the Minnesota Healthcare Programs Eligibility Policy Manual, originally published by the Minnesota Department of Human Services.
This is also part of a series of posts on Minnesota Healthcare Eligibility Policies.